By Auzinea Bacon, CNN
(CNN) — President Donald Trump’s latest tariff threats over Greenland and Europe’s potential countermeasures could result in significantly higher import prices that could weaken both economies.
Neither side appears to be messing around: In an extraordinary escalation of Trump’s pursuit of Greenland, the president announced Saturday that he would impose 10% tariffs on February 1 on goods from Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden and the United Kingdom. It would increase to 25% if an agreement is not reached by June 1.
That triggered an emergency meeting of European countries’ representatives Sunday, and French President Emmanuel Macron reportedly asked the European Union to activate its so-called anti-coercion instrument, colloquially known as a “trade bazooka.” The trade bazooka could block some of America’s access to EU markets or impose export controls, among a broader list of potential countermeasures.
That trade defense was made with countries like China in mind, not allies like the US, noted Erica York, vice president of federal tax policy at the Tax Foundation.
The bloc will also consider imposing €93 billion of previously announced retaliatory tariffs against the United States that were delayed when the EU and US reached a tentative trade truce in July last year, according to Reuters.
“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 Sunday. “For businesses, the developments over the weekend mean another period of uncertainty around investments in and exports to the US.”
That business uncertainty led many US companies to pause hiring in 2025 as they sought clarity during Trump’s unprecedented string of on-again, off-again tariff actions.
Brzeski said he expects the increased tariffs to shave off a quarter 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.
Dealing an economic blow to both economies
Using its “trade bazooka,” which could suspend US company licenses or tax US services, could take the EU months to implement, warned Dan Hamilton, a senior non-resident fellow at the Brookings Institution.
“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.
The EU implemented its trade agreement with the Trump administration last summer, but it hasn’t yet signed the accord. Although some leaders, including Germany’s Chancellor Friedrich Merz, supported the deal because it avoided a significant tariff escalation on both sides, many European leaders decried the agreement when it was announced, and Trump’s latest salvo puts the deal in doubt.
The European Parliament’s Manfred Weber said on X, that “given Donald Trump’s threats regarding Greenland, approval is not possible at this stage” for a US-EU trade agreement.
“These actions really do represent an end of the credibility of American commitments. That’s going to have adverse effects on the world economy,” said Steven Durlauf, a professor at the University of Chicago’s Harris School of Public Policy.
In 2024, the United States traded $236 billion worth of goods with Germany, according to the US Census Bureau, in addition to $147.7 billion with the United Kingdom, $122.27 billion with the Netherlands, $103 billion with France, and tens of billions of dollars each with Sweden, Norway and Finland.
Trump may have allowed for a loophole, however: Trump’s tariffs are directed at a select few member nations, not the entire European Union. So the eight countries could reroute trade within the EU’s free trade bloc to avoid those tariffs.
“There’s no border between Spain, Italy, Germany and France. Anybody can ship a good through another country quite easily if we try and tariff individual states,” warned Joseph Foudy, a New York University Stern School of Business professor.
Leaving America behind
An immediate 10% tariff won’t rattle the economy as significantly as the long-term effects of a strained relationship with America’s largest trading partners.
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.
“Uncertainty is the enemy of growth,” said Durlauf of the University of Chicago. He added that Trump’s unprecedented decisions “make things somewhat irreversible,” as allies lose faith even after a new administration takes office.
These tariffs could also be struck down by the highly anticipated Supreme Court ruling on Trump’s use of emergency powers.
America’s largest trading partners are actively strengthening trade relations with other nations. Canada celebrated a “strategic partnership” with China last week, including easing tariffs and selling Chinese EVs. And the EU announced it struck a deal with South America’s Mercosur, capping off 25 years of trade negotiations.
“In actions to try and acquire Greenland, we might paradoxically be driving our most important allies away. The cost of this policy is that it’s actually emboldening the very enemies that we’re concerned about,” said Foudy.
He added that the policy would weaken America’s export competitiveness, and companies may decide to delay investment decisions because of tariff uncertainty
“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.
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