One year after Donald Trump’s return to the White House, relations between the United States and its European allies are going through a deep crisis. The trigger was Greenland, an autonomous territory of Denmark, over which the American president has effectively made territorial claims. Washington’s aggressive rhetoric has already led to the deployment of additional NATO forces on the island and threatens to escalate into a large-scale trade war between the US and the EU. The Wall Street Journal analyzed the possible consequences of this confrontation. Below is a summary of its key findings.
Davos and ultimatums
This week, Trump will discuss the Greenland issue with European NATO leaders at the World Economic Forum in Davos. The talks will take place against the backdrop of Washington’s announced plan to impose new tariffs on countries that do not support the US position on the island. According to the WSJ, the EU is considering retaliatory measures: tariffs on American imports worth more than $100 billion, as well as possible restrictions on US corporations participating in European public tenders.
In the short term, a trade war will deal a serious blow to the European economy, already weakened by slowing growth. However, analysts warn that the United States will also pay a high price. Possible consequences for the US economy include slower GDP growth, rising consumer prices, higher borrowing costs, and falling stock markets.
As noted by Mary Lovely, senior fellow at the Peterson Institute for International Economics, a rupture with Europe could lead to a sharp decline in sales for American companies, which would lose market share to competitors, primarily Chinese firms.
Europe as a key US partner
Today, the EU remains the United States’ largest trading partner. Europe is also the main source of foreign direct investment in the American economy. In 2024, European countries invested about $3.6 trillion in the US. In the opposite direction, American investments in Europe reached nearly $4 trillion.
US companies earn significant revenue in Europe from software, financial services, energy, and digital products. Exports of services to the EU alone brought the United States nearly $295 billion in one year.
Investors may turn away from the US
Some analysts warn that Trump’s threats could push European investors to reduce their holdings of US stocks and bonds. This could lead to:
- a weaker dollar
- higher yields on government bonds
- lower investment
- declining consumer spending
Taken together, these factors could slow the entire US economy.
New wave of tariffs
On January 17, Trump announced that starting February 1, 10% tariffs would be imposed on goods from:
- Denmark
- Norway
- Sweden
- France
- Germany
- United Kingdom
- Netherlands
- Finland
If no compromise on Greenland is found by June 1, tariffs will rise to 25%. Luxury goods will be particularly affected: French perfumes, cheeses and wines, German cars, luxury items, and more.
Europe prepares its response
Economist Brad Setser from the Council on Foreign Relations told the WSJ that the EU is likely to once again use the tactic of “politically sensitive strikes”, targeting goods that matter to Republican states. In previous trade disputes, the EU imposed tariffs on bourbon, Harley-Davidson motorcycles and agricultural products.
Who really pays the tariffs?
A study by the Kiel Institute for the World Economy showed that in 2024–2025, 96% of all tariffs were paid by American companies and consumers. Foreign exporters covered only 4%. The US manufacturing sector is particularly vulnerable. Many factories depend on European equipment and components. Tariffs increase production costs.
The BMW example
One of the most at-risk cases is BMW’s plant in Spartanburg, South Carolina:
- 12,000 jobs
- more than half of production is exported
- a significant share goes to the EU
Retaliatory tariffs could lead to lower output and layoffs.
At the same time, American automakers depend less on the European market and could potentially benefit if European imports lose competitiveness.
The financial dimension
Europeans hold about $8 trillion in US stocks and bonds, almost twice as much as the rest of the world combined. Deutsche Bank’s head of currency research, George Saravelos, noted that amid declining trust in the Western alliance, it is unclear why Europeans would continue to accept such financial dependence on the United States.
If the escalation continues, Washington risks accelerating the EU’s strategic shift away from the US, with long-term consequences for American influence and its economy.
