Greenland as the trigger of a new trade war

• The Greenland dispute risks triggering a renewed EU–US trade war, with the US threatening tariffs of up to 25 per cent unless Denmark agrees to sell Greenland.
• New US tariffs would effectively dismantle last summer’s EU–US trade truce, despite legal uncertainty over their validity.
• Germany is particularly exposed: exports to the US are already sharply lower, and higher tariffs could significantly hit GDP.
• The conflict also weakens confidence in the US dollar, as markets fear long-term erosion of its global role due to politicised trade policy.

A new trade dispute between the European Union and the United States, triggered by the conflict over Greenland, is sharply increasing the risk of a lasting deterioration in transatlantic relations. Donald Trump has announced plans to impose tariffs of 10 per cent on imports from eight European countries (including Germany and France) from 1 February, with the threat of raising them to 25 per cent from June. According to Washington, avoiding further escalation would require Denmark to agree to the sale of Greenland to the United States.

If implemented, these measures would effectively dismantle the EU - US trade agreement reached last summer, which was designed to freeze the earlier tariff dispute and cap US duties at 15 per cent. The legal basis for new tariffs in the United States remains highly uncertain, and the Supreme Court is expected to rule soon on the validity of many existing measures. Nevertheless, past experience suggests that legal uncertainty rarely constrains the Trump administration’s use of tariffs as a political tool.

The official White House narrative frames the issue in terms of security, arguing that Greenland faces growing threats from China and Russia. This claim is weak, given that the United States already enjoys extensive rights on the island, including military deployments, base construction, surveillance of shipping routes and access to natural resources. It therefore seems more plausible that the escalation is driven by domestic political considerations, including the desire to divert attention from internal challenges and to cultivate the image of a president who expands US territory and influence.

For Germany, the dispute comes at a particularly unfavourable time. Even after the introduction of reciprocal tariffs last year, German exports to the United States fell markedly. In November 2025, the value of German goods exports to the US was over 20 per cent lower than a year earlier. Estimates indicate that the current 15 per cent tariff regime could reduce German GDP by around 0.3 per cent, while an increase to 25 per cent - would deliver a significantly stronger negative shock.

The sale of Greenland has been firmly rejected by both Denmark and Greenland’s own authorities. Brussels may continue to pursue diplomatic de-escalation, for instance by offering a stronger NATO presence or expanded security cooperation. However, the scope for compromise appears limited. As a result, the likelihood of a renewed trade conflict is rising, ranging from a formal rejection of the existing agreement with the United States to retaliatory tariffs and, ultimately, the use of anti-coercion instruments against major US corporations.

A major obstacle is the lack of consensus within the EU. While some member states and influential Members of the European Parliament favour a tougher response, others (less exposed to economic damage) see little benefit in reigniting the conflict. As a consequence, although diplomatic de-escalation cannot be ruled out, the probability of a renewed trade war has clearly increased. The dispute over Greenland may thus become the catalyst for a broader and more damaging economic confrontation, with particularly severe and long-lasting consequences for Germany and the European economy as a whole.

The US dollar weakened today as markets reassessed the implications of Washington’s renewed tariff threats. Until now, the dollar had been supported by a slower-than-expected increase in trade barriers and by strong investment flows into new technologies, while investors assumed that any escalation would hurt Europe more than the United States. That sense of resilience is now being questioned. Beyond the immediate trade impact, markets are increasingly alert to the longer-term risk that more frequent use of tariffs and economic pressure could undermine the dollar’s role as the world’s dominant currency, encouraging trading partners to reduce their reliance on dollar-based transactions in order to limit political exposure.

European equities came under strong pressure on Monday after Donald Trump threatened to impose new tariffs on eight European countries. The Stoxx Europe 600 fell by roughly 1 per cent, reflecting broad weakness in trade-sensitive and risk-exposed stocks. National benchmarks also declined, with France’s CAC 40 down about 1.6 per cent, Germany’s DAX lower by around 1.35 per cent, and the UK’s FTSE 100 easing roughly 0.52 per cent, as investors sold off automakers, luxury names and other export-driven sectors.