Trump Threatens Tariffs on Europe as Trade War Over Greenland Ramps Up

U.S. President Donald Trump announced new 10% tariffs on eight European countries, including Denmark, Norway, and Germany, starting February 1, as part of his broader effort to pressure Denmark into selling Greenland according to market analysis. The tariffs, targeting European allies who have supported Denmark’s stance against U.S. acquisition of Greenland, are expected to escalate trade tensions. Trump has also warned of a 25% tariff increase by June 1 unless a full deal is reached.

The European Union and Mercosur, a South American trade bloc, have recently signed a landmark free trade agreement, strengthening commercial ties in the face of global trade tensions. According to reports, the deal brings together a market of over 700 million consumers and covers a quarter of global GDP. However, the agreement still faces challenges in gaining approval from the European Parliament due to concerns from European farmers and other protectionist groups.

Financial markets are on edge as the threat of new tariffs emerges. Analysts suggest the immediate impact could be seen in European equities and risk sentiment, with potential volatility in the euro and related financial instruments.

How Did Markets Respond to Trump's Tariff Threats?

European stocks have been volatile in recent months, with the Stoxx Europe 600 rising 36% in dollar terms since the beginning of 2025. However, the new tariff threats could trigger profit-taking and short-term pressure, especially for companies exposed to U.S. imports.

Analysts at ING and Citigroup warn that a 10% tariff on European goods could lead to a 2-3 percentage point drag on European earnings growth. Companies in sectors such as automotive, luxury goods, and shipping are considered particularly vulnerable.

Investors are closely watching whether European countries will retaliate and how the U.S. Supreme Court will rule on Trump’s previous tariff decisions. The outcome could determine the level of uncertainty in global markets.

Why Is Greenland a Strategic and Political Flashpoint?

Trump has repeatedly asserted that controlling Greenland is essential for U.S. national security, citing the island's strategic location and potential for Arctic access. He has also suggested that the U.S. could take Greenland "one way or the other" to prevent Russian or Chinese encroachment.

Denmark and other European allies have firmly opposed the U.S. move, warning that any forceful U.S. action would damage transatlantic relations and undermine NATO unity. Greenland's leaders have also emphasized the need for local self-determination in any decision regarding the island's future.

Trump's rhetoric has led to increased military deployments in the Arctic region. Denmark has bolstered its military presence, with support from NATO allies like Sweden and Germany. The situation highlights the growing strategic importance of the Arctic amid shifting global power dynamics.

What Are Analysts Watching for Next?

Analysts are monitoring whether the European Parliament will approve the EU-Mercosur trade deal amid rising protectionist sentiments. According to reports, the agreement includes provisions to limit tariff reductions on agricultural products, aiming to address concerns from European farmers and other lobbies.

There is also speculation about how the U.S. and European allies will resolve the Greenland dispute. Some suggest the U.S. and EU could return to the trade war dynamics seen earlier in 2025, with long-term implications for bilateral relations.

Financial markets are expected to remain in a 'risk-off' mode as uncertainty grows. Investors are advised to monitor the political developments and any retaliatory measures that might emerge from European nations.