US tariffs related to Greenland are expected to have more of a political than an economic impact.

Faced with resistance to his bid to acquire Greenland, President Trump announced on January 17, via social media, the imposition of 10% tariffs on eight NATO allies: Denmark, Norway, Sweden, the United Kingdom, France, Germany, the Netherlands, and Finland. These tariffs are scheduled to take effect on February 1 and increase to 25% on June 1 if no agreement is reached.

If these new tariffs are implemented, their macroeconomic impact will remain limited. These eight European economies account for 10.5% of total US imports of goods. These new US tariffs would likely be imposed under the International Emergency Economic Powers Act (IEEPA). This provision is currently under review by the Supreme Court . Under current IEEPA tariff schemes, 44% to 50% of imports from the targeted countries would be exempt, as they are already subject—or potentially subject—to tariffs under Section 232. After these exemptions, the increase in the effective tariff rate would be approximately 0.5 percentage points in a 10% tariff scenario and 1.5 points in a 25% scenario, figures significantly lower than the impact of the global tariff announcements of April 2025.

Combined with significant uncertainty regarding the implementation of this threat, this modest impact leads us to maintain our US growth forecast at 1.9% for 2026. Indeed, the announcement via social media rather than by decree, the precondition linked to an acquisition of Greenland, the two-week window before the February deadline, and the US president’s habit of backtracking on his threats are all factors that leave room for doubt about what will happen next.

However, a significant difference remains compared to August 2025, when the European Union accepted the framework of the agreement setting tariffs at 15%: the bloc now has greater negotiating power and appears more likely to retaliate with tariff countermeasures. Indeed, the EU benefits from room to maneuver that allows it to respond ahead of the US midterm elections. Possible actions could be reminiscent of those of March 2025, when the EU reacted to Mr. Trump’s tariffs on steel and aluminum with measures targeting Republican strongholds, including tariffs on Kentucky bourbon, Harley-Davidson motorcycles from Wisconsin (a key state), and certain agricultural products from Iowa and other states.

The November 2026 midterm elections are just a few months away, which significantly increases the potential political impact of counter-tariffs.

While these measures were suspended by the agreement signed in August, three factors make a response more credible this time. First, the November 2026 midterm elections are only a few months away, significantly increasing the potential political impact of retaliatory tariffs. Second, the Greenland argument should enjoy broad political support in Europe. Finally, the US tariffs specifically target NATO allies that have deployed troops to Greenland for collective defense, creating multi-party unity in Europe and bipartisan opposition in the United States.

Initial reactions from European leaders point in this direction, with retaliatory measures targeting up to €93 billion of US exports by February 6, in order to allow time for a de-escalation of tensions. French President Emmanuel Macron has also threatened to use the EU’s Instrument against Coercion (ICA). If Europe retaliates, we believe the political impact on President Trump, as the midterm elections approach, will be more significant than the direct economic effects of the tariffs.

Rise in the geopolitical risk premium

Overall, we maintain our baseline scenario that, despite escalating tensions, these 10% tariffs will either not come into effect or will only be applied for a short period, because President Trump has more to lose and Europe has more incentive to retaliate firmly. However, we acknowledge the possibility of a spiral of tensions between the EU and the US, accompanied by tariff increases from both sides.

Regarding the markets, we expect an increase in the geopolitical risk premium, particularly in gold prices. Its magnitude and duration will depend on the risk of trade escalation between the EU and the US, as well as the Supreme Court’s decision regarding the use of the IEEPA.

We do not anticipate a lasting effect on the markets. However, we do expect more pronounced regional and sectoral differentiation.

Barring a major escalation, and given the current strength of corporate earnings, we do not anticipate a lasting impact on markets. However, we do expect more pronounced regional and sector differentiation, with a rotation towards defensive sectors and AI-exposed stocks with reasonable valuations. Swiss, Japanese, and emerging market equities should outperform. Within emerging markets, those more focused on domestic demand, such as China and India, should outperform countries with greater exposure to the United States, such as Taiwan and South Korea, which are more vulnerable to profit-taking.

Should tensions escalate, however, European stock markets are the most vulnerable, particularly in export sectors linked to IEEPA tariffs—such as healthcare, machinery, luxury goods, capital goods, and some technology equipment—which are expected to face pressure on margins and valuations. France, Germany, and the UK appear to be the most exposed. US stocks are not immune either, especially if the EU imposes tariffs on €93 billion worth of US imports. This situation poses a risk to industry, exporters, some global consumer companies, and, more broadly, to investor sentiment. A potential reduction by the EU of its $8 trillion in US assets could lead to a rise in the risk premium for US stocks and a weakening of the dollar. For now, the strong momentum of AI-related results will limit the decline in US stocks, unless trade tensions deteriorate into a systemic and prolonged conflict.

Given the United States’ weak net international position and Europe’s role as the main foreign holder of US assets, the dollar is unlikely to appreciate.

If tensions escalate, we also anticipate limited volatility in short-term US interest rates, with upside risks particularly for longer-term yields, reflecting geopolitical risks and political uncertainty. Given the US’s small net international position and Europe’s role as the largest foreign holder of US assets, the dollar is unlikely to appreciate. Pressure to reduce or hedge dollar exposures remains. The Swiss franc is expected to see temporary gains as a safe-haven currency. We maintain our negative stance on the US dollar and our expectation of resilience in emerging market currencies.

We anticipate a limited impact on our tactical allocation beyond increased volatility, as our overweight position in gold provides diversification benefits. We are closely monitoring the situation and will adjust our positioning as needed.

Realpolitik in Davos

President Trump began the new year by pursuing multiple political agendas, following his actions in Venezuela and a criminal case against the Federal Reserve chairman. This week, world leaders—including President Trump and several European leaders, such as German Chancellor Friedrich Merz—are expected to gather in Davos, Switzerland, for the World Economic Forum’s annual meeting. The news cycle will therefore remain busy, and we are closely monitoring developments.