Stock markets have dipped and gold reached a new record high this morning, following threats by US president Donald Trump to impose 10% tariffs on eight European countries over their support for Greenland.
Trump announced on Saturday he would impose the tariffs on the UK, Denmark, Norway, Sweden, France, Germany, the Netherlands and Finland from 1 February over their opposition to his Greenland acquisition plans. These eight NATO countries recently sent troops to Greenland for a training exercise.
Trump warned that the tariffs could rise to 25% if his demands are not met.
Gold reached a record $4,690 per troy ounce on Monday. Silver prices also surged. European stock indices fell, with the FTSE and Euro STOXX opening lower, following a negative session in Asian markets overnight.
Susannah Streeter, chief investment strategist at Wealth Club, said: “Trump has described tariffs as the most beautiful word in the dictionary, but these latest moves mark an ugly turn of events, given they drive a wedge through the transatlantic alliance. Investors are nervous about a deeper trade war breaking out but there will still be hopes that there is room for negotiation.
“Memories of the 2025 TACO trade are still strong, with ‘Trump always chickening out’ of the most punishing of tariff threats, but it’s clear that threatening to seize a territory from a fellow NATO country is a dramatic turn of events.”
European Union officials discussed retaliation measures to the tariffs on Sunday. The EU is considering activating a €93bn tariff package that was prepared last year but suspended until 6 February.
The bloc is also weighing the use of its Anti-Coercion Instrument, which has never been deployed since its 2023 adoption. The tool can limit US companies’ access to the EU internal market.
EU leaders will hold an emergency summit on Thursday to discuss response options. The measures are being prepared ahead of meetings at the World Economic Forum in Davos this week, where Trump is due to attend on Wednesday.
The eight targeted countries issued a joint statement on Sunday, warning that the tariff threats undermine transatlantic relations. Officials described the situation as the most serious crisis in transatlantic relations for decades.
The statement said: “We stand in full solidarity with the Kingdom of Denmark and the people of Greenland. Building on the process begun last week, we stand ready to engage in a dialogue based on the principles of sovereignty and territorial integrity that we stand firmly behind.
“Tariff threats undermine transatlantic relations and risk a dangerous downward spiral. We will continue to stand united and coordinated in our response. We are committed to upholding our sovereignty.”
The European Parliament is set to suspend work on a US-EU trade deal in response to the crisis.
Dan Coatsworth, head of markets at AJ Bell, added: “Going hostile against Europe had the potential to cause considerable upset on financial markets. While we’ve seen a red day for European shares in general, it’s not panic time. What needs to be watched closely is how markets behave over the near-term. A 1% to 1.5% decline every day over a series of weeks adds up to trouble and that’s what investors are keen to avoid happening.
“Even though no-one knows how markets will behave over the near-term, there are some clues that investors are feeling cautious once more.”
Gold hitting a new high is one of these clues, given the yellow metal’s safe-haven status. Defence stocks continue to outperform as investors reckon that heightened geopolitical tensions will be positive for the earnings of military and security specialists, while utility stocks are attractive as they tend to hold up whether the backdrop is positive or negative.
The FTSE 100 has also performed better than its international peers and domestic-focused FTSE 250 this morning, thanks to the prevalence of gold miners, defence contractors and utility providers in the blue-chip index.
“Investors have shown restraint over the past year at not going into full-blown panic mode. Yes, there have been plenty of wobbles, but markets have quickly found their feet,” Coatsworth said.
“The key area to watch is inflation, as higher tariffs could bring an end to interest rate cuts in the near-term. Central banks raise rates to fight high inflation and Trump’s latest tariff threat has all the right ingredients to stop looser monetary policy in its tracks. Higher rates are generally bad for equity markets.”