The latest threats by U.S. President Donald Trump to impose tariffs against the backdrop of Greenland, and the possible European countermeasures, could lead to a significant increase in import prices and weaken both economies.

Neither side appears to be bluffing. In a highly escalatory move as part of his pursuit of Greenland, Trump announced on Saturday that starting February 1, a 10% tariff will be imposed on products from Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden, and the United Kingdom. The rate will rise to 25% if no agreement is reached by June 1.

The announcement triggered an emergency meeting of European governments on Sunday. French President Emmanuel Macron reportedly urged the European Union to activate the so-called “anti-coercion instrument”—also known as the “trade bazooka.” This tool could, among other things, restrict U.S. companies’ access to EU markets or impose export controls.

The European Commission appears receptive, stressing that even after the signing of an agreement between Washington and Brussels, all of the Union’s “tools” and “weapons” remain fully active and available. The “trade bazooka” was designed primarily with countries like China in mind—not allies such as the United States—but that may change, given that Donald Trump has no qualms about turning his own weapon of tariffs even against America’s closest allies.

At the same time, the EU is considering retaliatory tariffs totaling €93 billion ($108 billion) against the United States. These measures had been announced in the past but were “frozen” when Brussels and Washington reached a temporary trade truce in July of last year.

From the first reactions, it appears that some European leaders are prepared to play hardball. For businesses, these developments signal a new period of uncertainty surrounding investments and exports to the United States. This uncertainty has already led many American companies to “freeze” hiring in 2025, as they seek clarity amid Trump’s unprecedented sequence of tariff threats and reversals.

Experts estimate that higher tariffs will shave about 0.25 percentage points off Europe’s GDP this year. Europe remains dependent on the United States, both economically and in terms of security, and the data suggest that the U.S. president will attempt to exploit this dependence—even beyond established limits or rules.

Economic hit for both sides

Activating the “trade bazooka”—which could suspend licenses for U.S. companies or tax American services—may take months. Trump’s latest threats risk blowing up the trade arrangements agreed with the United Kingdom and the EU last summer, further straining relations with America’s closest allies.

The EU implemented the agreement with the Trump administration but has not yet ratified it. Although some leaders—such as Germany’s chancellor, Friedrich Merz—supported it to avoid escalation, many Europeans criticized it from the outset. Trump’s latest move brings uncertainty back to the fore.

Manfred Weber, president of the EPP parliamentary group, wrote on X that “in light of Donald Trump’s threats over Greenland, approval of an EU–U.S. agreement is not possible at this stage.”

In 2024, U.S.–Germany trade amounted to $236 billion, followed by the United Kingdom with $147.7 billion, the Netherlands with $122.27 billion, and France with $103 billion, according to the U.S. Census Bureau.

There is, however, a “window.” The tariffs target specific countries rather than the EU as a whole, which could allow trade to be rerouted within the single market. There are no borders between Spain, Italy, Germany, and France, and American products can be relatively easily channeled through another country.

Leaving America behind

An immediate 10% tariff would not be as damaging as the long-term consequences of a persistently strained relationship with the United States’ largest trading partners.

Uncertainty—over whether Trump will escalate or retreat—is what pushes partners to strategically distance themselves from the American market. Uncertainty is the enemy of growth, and these decisions become partly irreversible, as trust erodes even after a change of president.

The United States’ largest trading partners are already strengthening ties elsewhere. Canada announced a “strategic partnership” with China, while the EU concluded an agreement with Mercosur, wrapping up 25 years of negotiations.

The real cost of trade conflicts is not the tariffs that change from day to day. It is the factories that were never built because companies lacked the certainty required to invest.