The world breathed a sigh of relief after President Trump told attendees at the World Economic Forum in Davos that he would not use force to seize Greenland. But he is still pushing for tariffs on Europe if Denmark refuses to sell its territory to the US
Trump’s plan has angry european leaders. “It is one thing to be a happy vassal. It is another thing to be a miserable slave,” said Belgian Prime Minister Bart de Wever. French President Macron said Trump’s “endless new tariffs” were “fundamentally unacceptable.” Meanwhile, European Commission President Ursula von der Leyen Call for EU “independence” Separate from the United States and make this independence “permanent.”
But does Europe have enough economic weapons to force the White House to reconsider?
Wall Street analysts think that may be the case.
Here are seven ways the EU could harm the U.S. economy if Trump refuses to answer questions about Greenland, according to research by George Saravelos: Deutsche Bank, Joachim Klement of Panmure LiberumThierry Weitzman and Gareth Berry of Macquarie, and Samuel Graves and Oliver Allen of Pantheon MacEconomics.
- Reduce the supply of foreign direct investment in U.S. bonds and stocks by incentivizing investors to keep capital assets in Europe.
“European countries own $8 trillion in U.S. bonds and stocks, almost twice as much as the rest of the world combined,” Saravelos told clients a few days ago. - A proposal to impose $100 billion in tariffs on U.S. imports was scrapped when the EU accepted a tariff deal last year.
- Use the Digital Services Act to further restrict how U.S. technology companies operate.
- Implement a “Buy Europe” bill to guide the government to purchase more from European suppliers.
- Implement the Anti-Coercion Instrument (ACI) to impose tariffs on U.S. services companies and companies with ties to the U.S. government.
ACI would effectively ban U.S. services companies from doing business in Europe, which runs a services surplus with the United States. The measure is often called Europe’s trade “bazooka”. - “Export taxes are imposed on hard-to-substitute EU products exported to the United States, such as chip manufacturing equipment or specialized machinery,” Macquarie said.
Removing U.S. access to Dutch semiconductor supplier ASML, which has a near-monopoly on some technologies, will create logistical challenges for many U.S. technology companies. - Sanctions imposed on U.S. companies operating in Greenland.
“The United States has a key weakness: it relies on other countries to pay its bills through large external deficits. Europe, on the other hand, is the largest creditor of the United States: European countries own $8 trillion in U.S. bonds and stocks, nearly twice as much as the rest of the world combined. In an environment where the geoeconomic stability of the Western Alliance is severely undermined, it is not clear why the Europeans are willing to play this role,” Saravelos told clients in 2017. A note that annoyed Finance Minister Scott Bessant.
Trump is unlikely to stand aside. “Of course, these actions will trigger an escalation from Trump in the short term, which is why some EU leaders like Germany’s Friedrich Merz are currently trying to soften the EU’s response,” Clement wrote on his Substack.
“But 2025 also shows that if countries remain resolute, the escalation cycle will end in a matter of weeks, and Trump will back down (or should I say ‘back off’?) once he realizes he cannot bully others into submission.”
Analysts at Macquarie have warned that sweeping economic sanctions against the United States will exacerbate price inflation in the United States. “The EU is capable of economic retaliation, and may do so in the hope that determined EU retaliation (against U.S. threats or military action) will end the escalation cycle in a few weeks, which is a risk worth taking. What can the EU actually do? The EU can do enough to harm the U.S. economy and U.S. security, and these trade-related measures could collectively be inflationary,” they said.
Toombs and Allen said ACI’s “bazookas” would not hinder the United States, but could cause harm. They told clients: “U.S. services exports to the EU will reach $295 billion by 2024, equivalent to 0.9% of U.S. GDP, suggesting that if the EU uses this relatively new lever, the harm may be greater than simply responding with tariffs, although its economy will also be harmed more.”