On January 17th local time, a statement by Donald Trump on Truth Social instantly reignited tensions across the Atlantic between longstanding allies.
According to reports, U.S. President Donald Trump announced that a 10% tariff will be imposed on all goods exported to the United States from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland, effective February 1st, and will remain until an agreement for the "complete and total purchase of Greenland" is reached.
This is not a vague pressure tactic nor a traditional trade negotiation. Trump has directly linked tariffs to the "purchase of territory," targeting long-standing European allies. This statement was quickly characterized by European officials as unacceptable political coercion.
From Wall Street's perspective, this move is not solely about Greenland's underground rare earth minerals or strategic Arctic shipping lanes; it may be more accurately viewed as a carefully calculated "election show." This time, however, Europe appears unwilling to merely protest and might be seriously considering engaging in a "capital war."
HSBC, in its latest research report, unusually pointed out directly that Trump's statement "clearly marks a major escalation," not just because of the tariffs themselves, but due to the "willingness to use hard power against historic allies to advance the objective of acquiring Greenland."
This characterization is crucial.
Over recent years, markets have grown accustomed to Trump using tariffs as a negotiation tool. The key difference now is that tariffs are no longer being used to secure trade terms but are explicitly being leveraged as a bargaining chip for a territorial transaction. This signifies that the core of the dispute has shifted from economic issues to matters of geopolitics and sovereignty.
In his post, Trump also mentioned that some European countries had recently deployed small numbers of troops to Greenland, stating they were there for "unclear purposes" and warning these nations were "playing a very dangerous game." From a European viewpoint, this rhetoric further amplifies the confrontational nature of the situation.
From an economic logic standpoint, this action is difficult to explain as a carefully considered trade strategy.
HSBC's report notes that, like many policies announced via social media, this tariff threat "leaves many key details unclear." For instance, it is still unknown whether the tariffs would be added on top of existing rates, if any exemptions exist, or what the legal basis might be.
However, what the market truly fears is not the details, but the direction.
HSBC had initially projected at the start of the year that European businesses might regain confidence in a "lower-tariff-volatility" environment by 2026. Trump's latest statement directly shatters this expectation. The report states plainly that this change "dashes hopes for a stable trade environment," pulling the European economy back into a world dominated by "tariff threats, suspensions, and uncertainty."
This is a typical feature of the midterm election cycle: policies may not ultimately be implemented, but the uncertainty itself begins to impact corporate decision-making, trade, and investment sentiment.
Analysis suggests that Trump's Republican Party faces significant pressure in the midterm elections, with a nearly 80% probability of losing the House of Representatives. With domestic policy achievements lacking, Trump urgently needs to create a sufficiently shocking external crisis to divert attention and rally nationalist sentiment to garner votes.
Market analysts have defined this pattern, from the previous "oil grab" in Venezuela to the current "forced takeover" of Greenland, as the "Trump + Monroe Doctrine." Trump's accusation that European countries are sending troops to Greenland for "unclear purposes" and playing a "dangerous game" may be clumsy rhetoric, but it can be effective with voters.
At the political level, key European leaders responded swiftly.
Reports indicate that European Commission President Ursula von der Leyen warned that this move would "damage transatlantic relations and could trigger a dangerous vicious cycle"; French President Emmanuel Macron stated that "no threat or intimidation will affect us"; and UK Prime Minister Keir Starmer called the approach "completely wrong."
However, what has truly captured market attention is not these statements, but the fact that Europe has begun seriously discussing an escalation of countermeasure tools.
Subsequent analysis from Goldman Sachs pointed out that the EU likely has three tiers of potential response pathways.
The mildest option would be to shelve the previously negotiated EU-US trade agreement. This agreement requires approval from the European Parliament, and in the current context, several Members of the European Parliament have explicitly stated that "conditions are not right for approval at this time."
The second option involves deploying the prepared retaliatory tariff list from last year, imposing tariffs on US goods. However, the market is familiar with this approach, and its economic and political marginal effects are limited.
The real change lies in the third option.
Reports from both HSBC and Goldman Sachs mention that voices within the EU (including President Macron and several MEPs) are calling for the activation of the Anti-Coercion Instrument (ACI). This instrument was specifically designed for situations where "a third country attempts to pressure the EU or a member state through economic measures."
Unlike traditional tariffs, the ACI is not a single trade retaliation tool. According to Goldman Sachs' description, it allows the EU to adopt a range of non-tariff countermeasures, including but not limited to:
Restricting investment, limiting access to public procurement markets, taxing foreign assets and services, and even involving digital services and intellectual property rights.
Restricting Investment: Limiting US access to the EU market. Public Procurement Restrictions: Prohibiting US capital from participating in EU government procurement. Intellectual Property Restrictions: Limiting related intellectual property protections. Asset Taxation: Goldman Sachs notes that the ACI could even involve taxing US assets or digital services.
It is important to stress that activating the ACI does not mean immediately implementing countermeasures. Goldman Sachs points out that the process itself involves multiple steps. However, the signaling effect of initiating the process is extremely strong: it signifies that the EU is no longer confined to a tit-for-tat tariff game and is beginning to consider responses at the level of capital, rules, and institutions.
This is also why the market has begun discussing a question previously seldom taken seriously: whether Europe, for the first time, possesses the institutional toolkit to engage in a "confrontation at the capital level."
From a purely economic perspective, the conclusions in the research reports are relatively restrained.
Goldman Sachs estimates that if the 10% tariff is ultimately implemented, it would reduce the real GDP of the affected countries by approximately 0.1% to 0.2% through the export channel. Among them, Germany would face a relatively larger impact, with the overall Eurozone and UK GDP drag being around 0.1%. If the tariff rate were to rise to 25%, the GDP impact could expand to 0.25% to 0.5%.
On the issue of inflation, however, Goldman Sachs believes that, assuming no strong retaliation, the tariff's impact on inflation would be "very small," primarily because weakening demand itself has a price-suppressing effect. Based on a simple Taylor rule calculation, monetary policy might even point towards "slightly lower policy rates."
HSBC also added that over the past year, as Europe has largely refrained from retaliatory measures, tariffs have in many cases exhibited a deflationary bias through exchange rate and demand channels.
What the market is truly pricing in is "uncertainty."
In summary, the core impact of this Greenland-related tariff dispute on the markets lies not in a one-off rate adjustment, but in the resurgence of trade and geopolitical uncertainty.
Under the pressure of the midterm elections, tariffs could fluctuate, policies could waver, and exemptions could appear or be revoked at any moment. For investors, this means rising risk premiums, increased volatility, and a reassessment of the logic behind transatlantic asset allocation.
When tariffs are used to trade for territory, the market is no longer facing ordinary trade friction; instead, institutional and geopolitical risks are beginning to directly enter the asset pricing system.
HSBC data indicates that geopolitical risk premiums have already started to be factored into asset prices. The Euro has fallen over 1% against the US Dollar year-to-date, and as the June 1st "deadline" approaches, volatility in the US Dollar Index, commodities, and precious metals is expected to amplify significantly.
