President Donald Trump’s recent tariff threats regarding potential Greenland countermeasures and Europe could spark a substantial rise in import costs, potentially weakening both economic blocs.
Neither side appears set to back down: in an over-the-top escalation of Trump’s Greenland pursuit, the President declared on Saturday that 10% tariffs would be slapped on goods from Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden, and the UK starting February 1st. Should an accord not be reached by June 1st, this rate would jump to 25%.
This triggered an emergency gathering of European officials on Sunday, with French President Emmanuel Macron reportedly requesting the European Union activate its so-called “intrusions tool,” popularly dubbed a “trade bazooka.” The trade bazooka has the capacity to restrict American market access to the EU to some degree or impose export controls, among a wider array of counter-measures.
The EU might be receptive to Macron’s call, based on statements from its executive branch on Monday. “People are asking me, ‘Is the anti-coercion instrument back on the table?’ It has never been off the table,” Olof Gill, a spokesperson for the European Commission, told reporters. “The EU has instruments at its disposal, and it is prepared to react if tariff threats are implemented.”
The trade bazooka was originally devised with nations like China in mind, rather than allies such as the US, noted Erika York, Vice President of Federal Tax Policy at the Tax Foundation.
The bloc is also set to consider rolling out previously announced retaliatory tariffs totaling €93 billion ($108 billion) against the United States, which were put on hold following a preliminary US-EU trade truce brokered last July, Reuters reported.
“At least judging by the initial reactions, some European leaders are ready for a tough stance,” Carsten Brzeski, Global Head of Macro at ING, stated in a note to clients on Sunday. “For businesses, the weekend’s developments signal a fresh spell of ambiguity concerning investments and exports to the US.”
This business uncertainty has already prompted many American firms to pause hiring plans for 2025 as they try to navigate the exceptional series of ongoing tariff measures from Trump.
Brzeski projected that an increase in tariffs would shave a quarter of a percentage point off Europe’s Gross Domestic Product this year.
“Europe remains reliant on the US in numerous respects—both economically and from a security standpoint,” he observed.
Inflicting Economic Harm on Both Economies
The deployment of the EU’s “trade bazooka,” which could halt US company licenses or levy taxes on American services, could take the EU several months to put into effect, cautioned Dan Hamilton, a Senior Non-Resident Fellow at the Brookings Institution.
“Trump’s latest threats risk unraveling trade understandings reached by the US with the UK and the EU last summer, while also souring relations with America’s closest allies,” Hamilton commented.
The EU finalized a trade agreement with the Trump administration last summer but has yet to formally sign it. While some leaders, including German Chancellor Friedrich Merz, favored the deal as it averted significant tariff escalation from either side, many European figures decried the agreement upon its announcement, and Trump’s latest salvo throws that deal into question.
MEP Manfred Weber stated on X that “considering Donald Trump’s threats regarding Greenland, authorization at this stage is out of the question” for a US-EU trade agreement.
“These actions truly signal an end to belief in American commitments. This will negatively impact the global economy,” said Steven Durlauf, a Professor at the Harris School of Public Policy at the University of Chicago.
In 2024, the US traded $236 billion in goods with Germany, according to US Census Bureau figures, along with $147.7 billion with the UK, $122.27 billion with the Netherlands, $103 billion with France, and tens of billions more with Sweden, Norway, and Finland.
However, Trump may have inadvertently created a loophole: Trump’s tariffs target several member states individually, not the entire European Union bloc. Thus, the eight nations could reroute trade within the EU free-trade zone to circumvent these duties.
“There is no border between Spain, Italy, Germany, and France. Anyone can easily ship goods through another country if there are attempts to target tariffs against individual states,” warned Joseph Foudy, a Professor at NYU’s Stern School of Business.
Leaving America Behind
The immediate 10% tariff won’t shatter economies as severely as the long-term fallout of strained relations with America’s top trading partners.
It is the unpredictability over whether Trump will escalate his tariff threats or retreat before imposing new duties that might prompt trading partners to look elsewhere for business in the long run, distancing themselves from America.
“Uncertainty is the antagonist of growth,” noted Durlauf of the University of Chicago. He added that Trump’s unprecedented decisions “render the situation somewhat irreversible,” as allies lose faith even with a new administration in power.
These tariffs could also potentially be overturned by a long-awaited Supreme Court ruling concerning Trump’s use of emergency powers.
America’s major trading partners are actively cementing trade ties with other nations. Last week, Canada celebrated a “strategic partnership” with China, involving tariff reductions and the sale of Chinese electric vehicles. And the EU announced the finalization of a deal with South America’s Mercosur, concluding 25 years of trade negotiations.
“In the maneuvering to seize Greenland, we may paradoxically be pushing away our most crucial allies. The cost of this policy is that it actually emboldens the very adversaries that concern us,” Foudy remarked.
He added that this policy will erode the competitiveness of American exports, and companies may postpone investment decisions due to tariff ambiguity.
“The real price of trade conflicts—because the goalposts sometimes seem to shift daily—is the factories that never get built simply because companies lack sufficient confidence,” he concluded.
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