Trump's Tariff Threat Revives Trade Tensions with European Companies

Impact of Trump's Tariff Threat on European Trade

By Adam Jourdan

LONDON, Jan 19 (Reuters) - Just as European companies were getting used to last year's hard-won U.S. trade tariff deals, President Donald Trump has put them back in his crosshairs with an explosive threat to place levies on nations that oppose his planned takeover of Greenland.

Trump on Saturday said he would put rising tariffs from February 1 on goods imported from EU members Denmark, Sweden, France, Germany, the Netherlands and Finland, along with Britain and Norway, until the U.S. is allowed to buy Greenland, a step major EU states decried as blackmail.

EU's Response and Retaliatory Measures

On Sunday, European Union ambassadors reached broad agreement to intensify efforts to dissuade Trump from imposing those tariffs, while also readying a package of retaliatory measures should the duties go ahead, EU diplomats said.

Concerns Over Economic and Geopolitical Stability

The shock move has rattled through industry and sent shockwaves through markets amid fears of a return to the volatility of last year's trade war, which was only eased with tariff deals reached in the middle of the year.

Potential Shifts in Trade Patterns

"This latest flashpoint has heightened concerns over a potential unraveling of NATO alliances and the disruption of last year's trade agreements with several European nations," said Tony Sycamore, market analyst with IG based in Sydney.

STAND-OFF COULD BRING BACK LAST YEAR'S TRADE WAR

In a post on Truth Social, Trump said additional 10% import tariffs would take effect next month on goods from the listed European nations — all already subject to tariffs imposed by the U.S. president last year of between 10% and 15%.

The bloc - which had an estimated $1.5 trillion in goods and services trade with the U.S. in 2024 - looks set to fight back. Europe has major carmakers in Germany, drugmakers in Denmark and Ireland, and consumer and luxury goods firms from Italy to France.

EU leaders are set to discuss options at an emergency summit in Brussels on Thursday, including a 93 billion euro ($107.7 billion) package of tariffs on U.S. imports that could automatically kick in on February 6 after a six-month pause.

The other is the so far never used "Anti-Coercion Instrument" (ACI), which could limit access to public tenders, investments or banking activity or restrict trade in services, in which the U.S. has a surplus with the bloc.

"The most likely way forward is a return to the trade war that was put on hold in high-level U.S. agreements with the UK and the EU in summer," said Carsten Nickel, deputy director of research at Teneo in London.

"The key question to watch is whether the EU will try to keep the confrontation confined to a more 'classic' trade war, or whether calls for a harsher line prevail."

COMPANIES WILL LOOK TO TRADE WITH 'LESS PROBLEMATIC NATIONS'

Susannah Streeter, chief investment strategist at Wealth Club, said the development created "another layer of difficult decision-making" for companies exporting to the U.S.

"Already they've had to try and absorb the current tariffs, there will be little room to soak up any more, so this new tranche of duties is likely to end up being passed onto American customers," she said.

"Given the chaotic nature of doing business with the United States, many companies will be looking to diversify their income streams and find new customers in less problematic nations."

Neil Shearing, group chief economist at Capital Economics, pointed out that some EU countries - Spain, Italy and others - were not on the tariff list, which would likely see "re-routing" of trade within the EU free trade bloc to avoid the taxes.

Analysts also said the new tariffs - if imposed - would likely hurt Trump too. They would push up U.S. prices and lead to front-loading of exports before the tariffs kicked in, while encouraging companies to seek new markets.

"For Europe, this is a bad geopolitical headache and a moderately significant economic problem. But it could also backfire for Trump," said Holger Schmieding, London-based chief economist at Berenberg.

"Logic still points to an outcome that respects Greenland's right to self-determination, strengthens security in the Arctic for NATO as a whole, and largely avoids economic damage for Europe and the U.S."

(Reporting by Adam Jourdan; Additional reporting by Samuel Indyk and Gregor Stuart Hunter; Editing by Jan Harvey)