LONDON (Reuters) — This week, global markets saw a new wave of volatility when President Donald Trump threatened to impose tariffs on eight European countries until the United States is allowed to acquire Greenland.
Trump stated that he will apply extra 10% import taxes on products from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and the United Kingdom beginning February 1, which would increase to 25% on June 1 if no agreement is reached.
“Hopes that the tariff situation would calm down this year have been dashed for the time being, and we are back where we were last spring,” said Berenberg chief economist Holger Schmieding.
The imposition of “Liberation Day” tariffs in April 2025 caused shockwaves through financial markets. Investors then mostly ignored Trump’s trade warnings in the second half of the year, dismissing them as noise and reacted with relief when Trump reached agreements with countries such as the United Kingdom and the European Union.
While the lull may be ended, market movements on Monday might be tempered by the fact that investor morale has been more resilient and global economic growth has remained on pace.
Nonetheless, Schmieding predicted that the euro would come under some pressure once Asian trade began.
The euro closed Friday at approximately $1.16 versus the dollar, its lowest level since late November.
The implications for the currency were less evident. It remains a safe haven, but it may suffer the effects of Washington being at the center of international tensions, as it was last April.
“For European markets it will be a small setback, but not something comparable to the Liberation Day reaction,” Schmieding disclosed.
European equities are nearing new highs, with Germany’s DAX and London’s blue-chip FTSE index up more than 3% since the beginning of the year, surpassing the S&P 500, which has up 1.3%.
European defence equities are expected to remain an outlier, benefiting from rising geopolitical tensions.
Defense stocks have risen over 15% this month, as the US detention of Venezuelan President Nicolas Maduro fueled fears about Greenland.
Denmark’s jealously guarded crown will most certainly be in the spotlight. It has been falling, although rate differentials have a significant role, and it remains close to the central rate at which it is tied to the euro. It is trading around six-year lows versus the euro.
“The US-EU trade war is back on,” said Tina Fordham, geopolitical expert and creator of Fordham Global Foresight.
Trump’s latest action occurred as top officials from the EU and Mercosur inked a free trade pact.
