By WSJ Staff
-- How big could the economic impact be?
For European countries threatened with new 10% tariffs, lower exports could reduce inflation-adjusted GDP by 0.1% to 0.2%, Goldman Sachs economists said Sunday. If those tariffs ramp up to 25%, as President Trump has threatened, the GDP hit could rise to somewhere between 0.25% and 0.5%, they said.
-- How will Europe respond?
Europe could hold off on eliminating tariffs on some U.S. imports; introduce retaliatory tariffs; or activate a never-before-used "bazooka" trade defense against economic coercion. However, some analysts are skeptical about how robust a response can be mounted.
"Europe's political and strategic constraints suggest that conciliation and de-escalation will remain Europe's go-to response to Trump's new tariff threat," said Cedric Gemehl of Gavekal. If the conciliatory approach fails, any retaliation will likely kick in "at a measured and gradual pace to maximize the chances for a deescalatory compromise," he added.
-- What are the bigger implications?
Rabobank analysts say the spat over Greenland is "a symptom of the end of the liberal world order," not just a retreat from free trade, but "the end of Westphalia, the 1648 European treaty that established the principles of state sovereignty and shaped international relations until recently."
"That has vast market implications. It's not good for countries without power, because there's no international system to prop them up with rules," the Rabobank team wrote.
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(END) Dow Jones Newswires
January 20, 2026 09:26 ET (14:26 GMT)
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