Europe can absorb Greenland tariffs, but escalation would be costly

President Donald Trump's return to office has triggered an escalating transatlantic trade dispute, centred on new US tariffs linked to Greenland and Washington's proposal to take control of the territory, according to the sources.

After resuming the presidency, Trump imposed a 10% "Greenland tariff" on imports from several European countries, including the Nordic states, Germany, France, the Netherlands and Britain. The move was framed as retaliation for the deployment of small numbers of European troops to Greenland, says the Economist.

The new levy comes on top of existing US tariffs of 15% on European Union goods and 10% on British products. Trump has also threatened to raise the Greenland-related tariffs to 25% by the summer of 2026 if European governments do not agree to a US takeover of Greenland, the sources said.

Economists estimate that the immediate macroeconomic impact of the 10% tariffs would be limited, reducing EU output by around 0.04% and US output by about 0.02%. Research cited by the sources indicates that American importers and consumers have borne roughly 96% of the cost of existing tariffs, with prices charged by European firms largely unchanged.

The effects have been uneven across sectors. Imports of industrial equipment from Europe fell by 4% in late 2025, while imports of vehicles, including cars, boats and aircraft, dropped by 32%. Luxury carmakers have been among the hardest hit, with Porsche's operating profits falling by 90% in 2025. Pharmaceutical and healthcare groups such as GSK and Novo Nordisk are also considered highly exposed, as they generate about half of their revenues in the US while maintaining a relatively smaller cost base there.

In response, the EU has prepared a range of potential countermeasures. These include more than €90 billion in retaliatory tariffs on US goods, targeting products made in Republican-leaning districts or items with readily available European substitutes.

European officials have also discussed the use of strategic export controls, such as restricting scrap metal sales to US smelters or limiting exports of products where Europe holds a near-monopoly. These include advanced lithography machines used in chipmaking, produced by ASML, as well as Airbus aircraft and certain military helicopters.

Additional options under consideration include tighter regulation of US technology companies operating in Europe, potentially excluding them from government procurement, and measures that could limit access for American financial firms to European markets.

Despite these tools, the sources suggest the United States would retain greater leverage in a prolonged economic confrontation. Washington could restrict European access to US-based cloud services, use the dominance of the dollar and the US financial system as pressure points, or impose export controls on military equipment and intelligence sharing, including support related to Ukraine.

The sources also point to a potential soft-power dimension. The United States is set to co-host the 2026 FIFA World Cup, where European and South American teams are expected to be among the tournament's main attractions. A European boycott, while unlikely, would carry limited economic cost for Europe but could deal a symbolic blow to the US administration, the sources said.