European leaders are preparing for another full-scale trade war with the United States following President Trump’s threat to levy a 10% tariff on imports from nations that resist his push to gain control of Greenland.
This proposed tariff risks undermining the U.S.-EU trade agreement finalized last summer. The pact encompasses $750 billion in energy purchases from the U.S., $600 billion in EU investment, and billions in tariff reductions on goods from European nations.
Speaking at the World Economic Forum, European Commission President Ursula von der Leyen cautioned that the EU’s reaction to the tariff threats would be “resolute, unified, and measured.”
“In politics as in business—a deal is a deal. And when friends shake hands, it must mean something,” von der Leyen stated.
Trump, however, is unwavering in his pursuit of the Arctic island. In a series of Truth Social posts, Trump communicated to NATO Secretary-General Mark Rutte about Greenland, insisting that “there can be no going back.”
The European allies have several potential responses to Trump’s threat to acquire the island, outlined here in five ways:
Retaliatory tariff
One response from the EU could be to enact a matching tariff on various American products.
In last year’s trade talks, Brussels prepared a list of 4,800 categories of U.S. exports for potential tariffs, including items from whiskey and soybeans to aircraft and automobiles, totaling . This list is set to be implemented on Feb. 7 unless the European Parliament votes to halt it.
Since Trump renewed his focus on Greenland, momentum has grown for the European Parliament to approve these tariffs. On Tuesday, French Foreign Minister Jean-Noel Barrot expressed France’s support for the Parliament’s effort to suspend the U.S.-EU trade deal.
Nevertheless, European Commission Spokesperson Olof Gill emphasized that the immediate goal remains dialogue and preventing tariffs.
“This will ultimately harm consumers and businesses on both sides of the Atlantic,” Gill remarked.
Trade “bazooka”
A further option for the EU is to trigger the Anti-Coercion Instrument, often called the “trade bazooka.”
This policy, enacted in late 2023, is designed to prevent foreign nations from coercing European countries economically. The “trade bazooka” offers broader measures than simple reciprocal tariffs, enabling not just extra tariffs but also restrictions on imports and exports via quotas and licenses, limits on direct investment access to EU financial markets, or the suspension of intellectual property rights.
“As the EU is America’s biggest trading partner, this would inflict significant harm on the U.S. economy, likely triggering a U.S. recession and a worldwide slump, while also increasing prices for many common goods,” explained Dan Hamilton, a nonresident senior fellow at the Brookings Institution’s Center.
However, this represents the EU’s final line of defense for several reasons. Firstly, the European Commission could require up to 10 months to investigate and decide if coercion and retaliation from the country in question has occurred. Following the investigation, a supermajority of 27 Parliament members would need to support the action, a deliberation that might take up to 10 weeks. The instrument has also never been deployed, and some European nations, such as Germany, are still seeking to reduce tensions.
“We simply want to try to resolve this problem together, and the American government knows that we could also retaliate,” German Chancellor Friedrich Merz stated on Monday.
Dumping U.S. assets
European nations possess trillions of dollars in U.S. bonds and stocks. The EU could offload a massive quantity of these assets to increase borrowing costs and destabilize the U.S. financial market, creating greater uncertainty for retirement investments, business operations, and home purchases. Yet, large-scale sales of U.S. assets are far more difficult to carry out than they appear.
According to , most U.S. assets held by European countries are owned by private entities, not governments. Even if European governments could force their public wealth funds to sell U.S. holdings, finding a buyer capable of absorbing even a small portion of these assets would be challenging.
Critically, a sudden sell-off of U.S. assets would depress the dollar’s value and boost the euro, potentially destabilizing the European economies themselves.
Treasury Secretary Scott Bessent dismissed this notion on Tuesday in Davos as a “false narrative” that “defies any logic.”
“I am sure that the European governments will continue holding it and as I said, I think everyone needs to take a deep breath,” Bessent commented.
The Supreme Court
Along with many Americans, European officials are awaiting a U.S. Supreme Court decision on the legality of Trump’s tariffs, with a ruling possible this week.
The White House contends that a national security law from the 1970s—the International Emergency Economic Powers Act (IEEPA)—grants the President the power to declare an emergency and unilaterally impose tariffs.
Prior to the Supreme Court, the Court of Appeals for the Federal Circuit decided in a 7-4 ruling that none of the emergency authorities given to the President under the IEEPA law “explicitly include the power to impose tariffs, duties or the power to tax.”
But irrespective of the Supreme Court’s decision, the Trump administration is committed to maintaining the tariffs. In an last Thursday, U.S. Trade Representative Jamieson Greer said the administration intends to swiftly replace them with other charges if the high court invalidates Trump’s tariffs.
Defending Greenland by force
Despite Trump’s hint of , military action is still considered improbable. However, Denmark, a NATO member, has been strengthening its military footprint on the Arctic island in reaction to Trump’s aggressive stance.
Denmark’s defense minister, Troels Lund Poulsen, announced that Denmark would ramp up military operations in and around Greenland, pointing to a growingly volatile security situation. Several European NATO partners confirmed they are also deploying personnel to the island.
When asked on Monday if he would use force to take Greenland, Trump told NBC News “no comment.”
