Global Stocks Fall as Trump Escalates Tariff Threats Against Europe

Key Takeaways

• Global stock markets sold off on Tuesday, with European stocks extending losses and US equity futures pointing lower.’
• Safe-haven assets such as Treasury bonds rallied, with gold and silver reaching record highs.
• Denmark remained a focal point for investors, given its heightened exposure to potential tariff escalation tied to Greenland.

Stock markets fell Tuesday as investors responded negatively to US President Donald Trump’s escalating trade war with Europe over his demand to take over Greenland.

US equity futures pointed to losses at the open after European stocks fell for the second straight day. Nasdaq 100 futures were down 2.2%, and S&P 500 futures fell 1.8% while US Treasury yields rose as investors sought safe-haven investments. Asian stocks also closed lower on Tuesday, after largely resisting the selloff a day earlier.

US stock and bond markets were closed on Monday in observance of Martin Luther King Jr. Day, meaning Tuesday marked the first full opportunity for American investors to react to an unusually news-heavy weekend and escalating trade tensions between the United States and Europe.

“After a strong start to the New Year the last thing equity markets needed was an act of self-harm by the US administration,” says Michael Field, chief European markets strategist at Morningstar.

After falling 2.3% on Monday, the Morningstar Nordic Index continued lower on Tuesday extending losses to 3.1% for the week. The Morningstar Europe Index was down 2.5% while the Morningstar UK Index had a more muted decline of 1.4% by mid-day.

The stock market moves came after US President Donald Trump said the United States would impose new tariffs on European countries’ imports unless they acquiesce to a change in control of Greenland. Trump said that Denmark, which has sovereignty over Greenland, will face a 10% tariff on goods exported to the US starting Feb. 1. The same 10% levy would apply to Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland, with the rate set to rise to 25% in June if no agreement is reached.

Trump further escalated his rhetoric on Tuesday, threatening 200% tariffs on French wine and Champagne after reports that President Emmanuel Macron would not join his proposed Gaza Peace Board. He also lashed out at the UK over plans to hand sovereignty of the Chagos Islands, which host a UK-US military base, to Mauritius, calling the move an “act of great stupidity” and citing it as further justification for acquiring Greenland.

“Markets have taken the prudent approach to the news and retreated, but this is not some well-planned economic land-grab, rather a wild response to Europe’s pushback on Greenland,” says Morningstar’s Field.

Trump’s trade threats come as the Supreme Court is considering the legality of his use of tariffs under the International Emergency Economic Powers Act.

As investors worldwide are assessing how tensions between the United States and Europe may unfold, Henry Cook, senior economist at MUFG, says that the last year has taught markets not to overreact to Trump’s threats and highlights legal challenges: “As ever with Trump the details are thin on the ground—it’s not clear what legal framework would be used, nor how this would relate to the existing US reciprocal tariffs.”

Gold and Silver Extend Gains as US Dollar Weakens

Commodity markets reflected the broader risk-averse mood, with rising concerns over a potential trade war between the United States and the European Union driving demand for safe-haven assets. At the same time, the US dollar continued to weaken, providing additional support to precious metals. Gold and silver traded near record highs in morning dealings, at around $4,712 and $94 per ounce, respectively.