US President Donald Trump‘s renewed threats of tariffs against several European countries have sent shockwaves through global markets, leading to a decline in the US dollar and reigniting concerns about a potential “Sell America” trade narrative. The announcement comes amid ongoing diplomatic tensions over Greenland and follows a series of trade disputes that began after Trump’s significant tariffs imposed last April.
On Monday, stock markets reacted swiftly to the news. European equities fell by over 1%, while US stock futures showed weakness after the recent public holiday, reflecting investor anxiety regarding the potential escalation of trade conflicts. The dollar began to feel pressure as Trump revealed plans to impose new tariffs starting at 10% on February 1, 2024, increasing to 25% by June 1, 2024, until the United States secures permission to purchase Greenland, according to EconomicTimes.
In response to the tariff announcements, the euro regained some strength from its lows in November, while both the British pound and Scandinavian currencies appreciated. The Swiss franc, typically viewed as a safe haven, was poised for its most significant daily gain against the dollar in a month.
Francesca Fornasari, head of currency solutions at Insight Investment, noted the shock many investors felt over the weekend. She remarked, “I’m sure that there are a lot of people that are fairly aghast at what happened over the weekend and probably thinking about how they hold their assets.” Despite the dollar’s decline, Fornasari emphasized that it remains underpinned by a robust US economy and a resilient stock market.
The European Union has signaled its readiness to respond, potentially deploying an $8 trillion “sell America” strategy as tensions increase. Analysts warn that such actions could prompt global investors to offload dollar-denominated assets, diminishing their role as safe havens or attractive investments.
Market reactions have been less severe compared to the near 2% drop in the dollar witnessed in April following the initial tariff announcements. Leonard Kwan, a fixed income portfolio manager at T. Rowe Price, described the situation as “more noise than signal at this point,” referencing Trump’s historical tendency to de-escalate trade tensions over time.
The situation remains complicated as a pending ruling from the US Supreme Court on the legality of Trump’s tariffs looms. Uncertainty also persists regarding Europe’s potential responses. According to Reuters, the EU could retaliate with tariffs or activate an “anti-coercion instrument” to limit US access to public tenders, investments, banking, or trade in services.
Concerns surrounding a “Sell America” trade focus on the possibility of European investors reducing their holdings in US assets. European nations are the largest creditors to the United States, owning approximately $8 trillion in equities and bonds—nearly double the amount held by the rest of the world combined. George Saravelos, global head of FX research at Deutsche Bank, cautioned that it is unclear whether Europeans would be willing to participate if the geoeconomic stability of the Western alliance is disrupted.
As markets digest these developments, the unfolding trade conflict continues to raise questions about the future of US-European relations and the potential impact on global economic stability. The next few weeks will be critical in determining how these tensions evolve and their implications for international trade dynamics.
