From politics to finance. If anything has become clear during Donald Trump’s first year in the White House, it is how blurred the separations (if there are any) between geopolitics, defense, economics and taxation are for him. He made it clear shortly after assuming his second term, with the round of tariffs which followed what he baptized as “Liberation Day.” And it has become clear again now with the threats of liens to European countries on account of the tensions created around Greenland, an island that the Republican wants to incorporate to the USA.
Against this backdrop, Brussels is asking what response the EU should (can) offer. There is talk of activating tariffs worth 93 billion to punish American companies, to dust off the so-called “commercial bazooka”…and even a financial ‘nuclear bomb’ with which Brussels could pressure Trump, one that amounts to eight trillion of dollars.
What has happened? That Trump is not willing to give in to Greenland. And he did not like it one bit that a delegation of eight European countries (and colleagues in NATO) sent a small group of soldiers to the Arctic island to guarantee its defense. The Republican weekend threatened to punish them to all (Denmark, Finland, France, Germany, Netherlands, Norway, Sweden and the United Kingdom) true to its style: imposing tariffs on them.
The new rates will focus on commercial exports to the US and would be activated on February 1 with a value of 10%, although the idea is to raise them to 25% in June if the outlook does not change in Greenland. The message is clear: the Republican wants the Stars and Stripes flag to fly in Greenland, regardless of who he is, be it Denmark, the greenlanders themselves or other European nations with which it shares an alliance in NATO. “We need Greenland for national security reasons,” ditch the republican.
“He will not allow himself to be blackmailed”. Trump threatening tariffs is nothing new. In fact, one of his first star measures shortly after returning to the White House (just a year ago) was to announce a wide range of rates for an even broader list of nations, including the EU. What is more shocking is that it encounters the manifest anger that the EU has shown on this occasion. “Europe will not allow itself to be blackmailed,” he warned shortly after from Trump’s announcement Mette FrederiksenPrime Minister of Denmark.
Similar messages (more or less emphatically) have been launched by Emmanuel Macron, Keir Starmer or even the leaders of Norway and Finland, Alexander Stubb, who on other occasions has praised the American for his international policy. Not only the leaders have spoken out. Community parties have also done it, which they seem willing to go beyond rhetoric.
How to respond to Trump? That is the debate that has been flying over Europe since the weekend. Bloomberg assures that representatives of the 27 EU countries met yesterday precisely to discuss solutions. This week a new summit will be held with the same objective: to discuss retaliation. For now, the European People’s Party (among other formations) has shown in favor to leave in the air the trade pact reached in the summer with Washington.
It talks about restrict access of North American companies to the EU market and imposing tariffs on the US worth 93 billion of euros. all this on the eve of the World Economic Forum meeting in Davos.
The clearest and most resounding voice has probably been that of Macron, who has encouraged for the EU to activate its anti-coercive instrument, known as the community “trade bazooka”, which (if applied) could complicate US access to EU markets. Brussels itself clarify that this tool allows it to “launch countermeasures against a non-member country, including a wide range of restrictions related to trade, investment and financing.” These are big words if we take into account that in 2024 transatlantic trade in goods and services between the EU and the US exceeded 1.68 billion of euros.
“The biggest lender”. In recent days, another course of action has circulated, much more complex (and emphatic) that focuses on another key link between both territories: the enormous amount of US assets in the hands of Europeans. In a report released yesterday, George Saravelos of Deutsche Bank AG, I remembered that Europe is the largest lender to the US. To be more precise, their countries hoard eight trillion dollars in bonds and stocks. For reference, it assumes almost double than the rest of the world as a whole.
“Enjoys influence”. He is not the only one who has slipped that figure. In another report published today by ING Think, Carsten Brzeski and Bert Colijn recall that in recent days there has been talk of “the exposure” of the US to investors on the other side of the pond. “European countries own $8 trillion in US bonds and stocks, making Europe by far the largest US lender. Not only does this illustrate the interdependence between the regions, but Europe also enjoys influence over the US.”
Why is it important? Financial Times even goes further and estimates, using data from the Federal Reserve, that the total value of US financial assets in the hands of NATO countries in Europe reaches 12.6 trillion dollars. Savarelos slips that this figure represents a “weakness” of the US that makes it “dependent on others to pay its bills through large external deficits,” and cast a reflection: “In a context where the geoeconomic stability of the Western alliance is seriously disturbed, it is not clear why the Europeans would be so willing to assume this role.”
“Danish pension funds were among the first to repatriate money and reduce their exposure to the dollar a year ago. With dollar exposure still very high in Europe, the events of recent days could further drive dollar rebalancing,” duck the analyst. The question therefore is… Does the EU have a secret weapon, a pressure tool in its favor against Trump? Could Europe embark on “an era of ‘Sell America In’,” as ING THINK analysts ask in your analysis of the topic?
Not so easy. It is one thing for Europe to hoard trillions of dollars in American financial assets and quite another for it to be able to use them to exert pressure. And not only because of a matter of diplomacy and the refusal that Brussels has shown so far to tighten the rope with Trump. The key they provide it Robin Wigglesworth and Toby Nangle in Financial Times based on a key fact: although its analysis raises the total assets in European hands to 12.6 trillion, it also remembers that the majority are stocks and bonds in private hands.
To be more specific, they belong to thousands of insurance companies, pension plans, banks, investors, private citizens… The only notable exception of an institutional nature is the norwegian sovereign fund. So how do you force them to sell their assets? The only way, experts warn, would be through national laws that limit exposure, a complex process.
Another question is… Who would Europe sell that massive sum of US assets to? The FT experts warn that it is not possible to look at Asia, which would not absorb more than a small proportion of those trillions of dollars. “Maybe European investors will exchange all their Nvidia shares for Japanese state bonds? That doesn’t seem likely,” the analysts say, warning that if the value of US bonds plummeted due to the threat of a community boycott, Europe would also be harmed.
Images | Stock Birken (Unsplash), Arlington National Cemetery (Flickr) and Gage Skidmore (Flickr)
GIPHY App Key not set. Please check settings