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Key Takeaways
- President Donald Trump’s latest threats to seize Greenland have raised uncertainty about a potential trade war between the U.S. and Europe.
- Trump’s threatened tariffs on Europe could drag down U.S. economic growth by an entire percentage point next year, Goldman Sachs forecasters estimated.
- Uncertainty has been a major drag on the economy since Trump launched his tariff campaign last year, as businesses put hiring plans on hold.
The uncertainty that roiled the economy and undermined the job market in 2025 flared up again this weekend after President Donald Trump renewed his threats to seize Greenland from U.S. ally Denmark.
Trump stoked a fresh round of unease Saturday when he threatened to impose a 10% tariff against eight European countries, escalating to 25% in June, until Denmark sells the autonomous territory to the U.S.
European leaders are reportedly considering retaliatory moves, and French President Emanuel Macron proposed invoking the European Union’s “anti-coercion” instrument. Those countermeasures, sometimes called a “trade bazooka,” could include restricting imports and exports, restricting access to financial markets, and imposing a wide range of other punishments.
Stock prices, the dollar, and bonds all fell Tuesday as financial markets digested the possibility of a trade war between the U.S. and Europe.
The uncertainty surrounding U.S. trade policy has been a major factor in the economy ever since Trump first threatened, then imposed, unprecedented import taxes against nearly every U.S. trading partner last year. Businesses have cited the unpredictability of Trump’s tariff campaign as a major reason they have dramatically slowed down hiring this year, which has pushed up the unemployment rate.
What This Means For The Economy
Growing uncertainty around trade policy discourages business investment and hiring, putting downward pressure on economic growth. Tariffs would also disrupt global supply chain and raise import costs that would feed inflation, and complicate the Federal Reserve’s efforts to manage interest rates.
Uncertainty about future tariff rates can delay businesses’ expansion and hiring plans. For example, a manufacturer might put a new factory on hold until it has a better idea of how much parts and materials from overseas will cost, and how it should manage its supply chains in the new tariff regime.
Tariffs Could Have Major Impact
Economists see a wide range of possible outcomes of the current tensions, ranging from a quick and friendly resolution to a full-blown trade war. If tariffs do actually go into effect as Trump outlined, they say both the U.S. and global economies will suffer serious consequences.
The European Union opted to negotiate with Trump rather than retaliate after he imposed tariffs on the bloc last year, but his latest aggressive rhetoric could provoke a more stern response.
“While the uncertainty around President Trump’s tariff announcement remains very high, the firm and uniform response of EU leaders suggests that retaliation is more likely than last year if Trump decides to move forward with a 10% tariff on Feb. 1,” economists at Goldman Sachs led by Giovanni Pierdomenico wrote in a commentary.
The uncertainty itself has its own impact, regardless of what ends up happening.
“The risk of tariffs and policy uncertainty being a larger drag on the global economy early this year increased over the weekend after the U.S. threatened tariffs on six EU countries, the UK, and Norway, as it digs its heels in on acquiring Greenland,” Ben May, director of global macro research and Rory Fennessy, senior economist at Oxford Economics, wrote in a commentary.
If Trump implements the tariffs, U.S. economic growth as measured by Gross Domestic Product would be dragged down to 2.3% in 2026, Oxford estimated, down from an estimated 2.8% without the new tariffs.
“The deceleration in the economy would be noticeable ahead of the midterm elections,” May wrote.
