President Donald Trump’s latest tariff threats linked to Greenland and Europe’s potential countermeasures are raising alarms on both sides of the Atlantic, with economists warning that the escalating dispute could drive up import prices, dampen investment, and weaken already fragile economic growth in the United States and Europe.
In an extraordinary escalation of his long-running interest in Greenland, Trump announced on Saturday that the United States would impose a 10 percent tariff starting February 1 on goods imported from Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden and the United Kingdom. The tariffs would rise to 25 percent on June 1 if no agreement is reached, according to the president. The move marks one of the most aggressive trade actions Trump has taken against close allies and has immediately shaken diplomatic and commercial ties built over decades.
European leaders reacted swiftly. On Sunday, representatives from affected European countries held an emergency meeting to coordinate a response. French President Emmanuel Macron reportedly urged the European Union to activate its so-called anti-coercion instrument, often referred to in Brussels as a “trade bazooka.” Designed to deter economic pressure from external powers, the mechanism would allow the EU to restrict access to its market, suspend licenses for foreign companies, or impose export controls and other retaliatory measures.
“This tool was created with countries like China in mind, not allies like the United States,” said Erica York, vice president of federal tax policy at the Tax Foundation, highlighting how unusual the current standoff has become. Still, the fact that EU leaders are even considering its use against Washington underscores how deeply Trump’s latest threat has rattled Europe.
The EU is also weighing the activation of €93 billion worth of previously announced retaliatory tariffs on US goods, according to Reuters. Those measures were put on hold last July after Washington and Brussels reached a tentative trade truce aimed at easing tensions. That fragile détente now appears to be unraveling.
“At least judging from the first reactions, some European leaders are willing to play hardball,” said Carsten Brzeski, global head of macro at ING, in a note to clients on Sunday. “For businesses, the developments over the weekend mean another period of uncertainty around investments in and exports to the US.”
Such uncertainty has already had tangible effects. In 2025, many US companies reportedly paused hiring and delayed investment decisions as they struggled to navigate Trump’s on-again, off-again tariff announcements. Businesses dependent on transatlantic supply chains say that even the threat of new duties can be disruptive, forcing them to reconsider sourcing strategies, pricing, and long-term expansion plans.
Brzeski estimates that the proposed tariffs could shave roughly a quarter of a percentage point off European gross domestic product this year. “Europe is still dependent on the US in many ways, both from an economic and security point of view,” he noted, adding that a prolonged dispute would weigh on confidence at a time when growth is already under pressure from high interest rates and geopolitical instability.
While the EU’s “trade bazooka” sounds formidable, experts caution that it would not be deployed quickly. Dan Hamilton, a senior non-resident fellow at the Brookings Institution, warned that activating the instrument could take months due to legal and political hurdles within the bloc. “Trump’s latest threats risk shredding the trade arrangements the US concluded with both the UK and the EU last summer, and further straining relations with America’s closest allies,” Hamilton said.
Those arrangements, negotiated during Trump’s administration, were intended to stabilize transatlantic trade after years of friction. Although the EU implemented the agreement last summer, it has not yet formally signed it. Some leaders, including Germany’s Chancellor Friedrich Merz, supported the deal as a pragmatic way to avoid a damaging tariff escalation. Others were far more critical, arguing that it offered too many concessions to Washington. Trump’s new tariff threats now place the entire agreement in doubt.
Manfred Weber, leader of the European People’s Party and a key figure in the European Parliament, said on X that “given Donald Trump’s threats regarding Greenland, approval is not possible at this stage” for a US-EU trade agreement. His comments reflect a growing sentiment in Brussels that Washington can no longer be relied upon to honor negotiated commitments.
“These actions really do represent an end of the credibility of American commitments,” said Steven Durlauf, a professor at the University of Chicago’s Harris School of Public Policy. “That’s going to have adverse effects on the world economy.”
The stakes are high. In 2024 alone, the United States traded $236 billion worth of goods with Germany, according to the US Census Bureau. Trade with the United Kingdom totaled $147.7 billion, while exchanges with the Netherlands reached $122.27 billion and with France $103 billion. Sweden, Norway and Finland each accounted for tens of billions of dollars in bilateral trade. Any sustained disruption to these flows would reverberate across multiple sectors, from automobiles and machinery to pharmaceuticals and energy.
Trump’s approach may also contain a significant loophole. The tariffs target specific countries rather than the European Union as a whole. Because the EU operates as a single market with no internal borders, companies could potentially reroute goods through non-targeted member states to avoid US duties.
“There’s no border between Spain, Italy, Germany and France,” said Joseph Foudy, a professor at New York University’s Stern School of Business. “Anybody can ship a good through another country quite easily if we try and tariff individual states.” Such workarounds could blunt the immediate impact of the tariffs while adding complexity and inefficiency to supply chains.
Economists say the initial 10 percent tariff may not, by itself, trigger a recession or dramatic economic shock. The deeper concern lies in the longer-term damage caused by strained relationships and unpredictable policy.
“It’s the uncertainty about whether Trump will escalate his tariff threats or back out before imposing new duties that could make trading partners steer clear of America long-term,” Durlauf said. “Uncertainty is the enemy of growth.”
That uncertainty, he added, can have lasting consequences even after policies are reversed. “Trump’s unprecedented decisions make things somewhat irreversible,” Durlauf said, noting that allies may remain wary even after a new administration takes office.
There is also a legal dimension. Trump’s tariffs rely on emergency powers, and a closely watched Supreme Court ruling could determine whether such authority has been overused. A decision against the administration could strike down the tariffs, but the mere possibility of legal reversal does little to reassure businesses planning investments years in advance.
Meanwhile, America’s major trading partners are moving to strengthen ties elsewhere. Canada last week announced a “strategic partnership” with China that includes easing tariffs and opening its market to Chinese electric vehicles. The EU, for its part, recently finalized a long-awaited trade agreement with South America’s Mercosur bloc, concluding 25 years of negotiations.
“In actions to try and acquire Greenland, we might paradoxically be driving our most important allies away,” Foudy said. “The cost of this policy is that it’s actually emboldening the very enemies that we’re concerned about.”
Foudy warned that the tariff standoff could weaken America’s export competitiveness and delay critical investment decisions. “The real cost of the tariff conflicts — because tariff rates seem to sometimes change by day — is the factories that were never built just because companies aren’t certain enough,” he said.
As Washington and Brussels brace for the next phase of the dispute, businesses on both sides of the Atlantic are left navigating a familiar but increasingly costly reality: a global trading system shaped less by stable rules and more by political brinkmanship. Whether the latest threats become lasting policy or another episode in a cycle of escalation and retreat, the damage to trust may prove far harder to undo.
