Our latest analysis looks at a confrontation over Greenland and the knock-on economic risks if trade policy is used as leverage between allies.
Why this confrontation matters beyond Greenland
The immediate issue is political and security-led. But the mechanism being deployed – threats of additional tariffs against a group of European countries – turns the episode into a test case for how far economic tools might be used to pursue non-trade objectives.
Even if the direct trade impact is contained, the precedent matters. Once tariffs become a bargaining chip for security disputes, businesses have to plan for a wider range of “policy shocks” that can hit supply chains, pricing and market access with limited warning.
Retaliation does not have to stay in goods
A key risk is that tariff pressure triggers countermeasures that move beyond goods trade. EU retaliation discussions include not only tariffs, but also stronger instruments that could restrict market access for service-sector firms. That matters because modern transatlantic economic exposure is as much about services revenues, investment, and digital business models as it is about physical shipments.
In other words, a goods dispute can quickly become a broader one that does real economic damage.
There are three ways this could play out
We set out three broad scenarios:
Scenario 1: The US backs down – Tariff threats are withdrawn after the prospect of retaliation raises the cost of escalation; allies adjust security cooperation and the episode is framed as a political win without major economic damage.
Scenario 2: The EU backs down and Denmark agrees to sell Greenland to the US – Europe gives ground to avoid an immediate trade and investment clash, but at the cost of weakening perceived security credibility, raising longer-term uncertainty.
Scenario 3: Trade war – Both sides follow through on escalating measures, with damage to growth expectations and higher risk premia on financial assets.
Our central expectation is for de-escalation – but with a meaningful chance of prolonged pressure that still undermines confidence.
The legal wild card – and why it affects leverage
The US Supreme Court is expected to weigh in on the legal basis for parts of the current tariff framework. A ruling that constrains executive flexibility would not remove tariff risk altogether (other instruments exist), but it could complicate negotiations and alter the balance of leverage – adding another layer of uncertainty for markets to price.
Do not over-price the “minerals prize”
Greenland’s mineral resources are often cited in discussions around strategic motivation. But the economics are challenging: harsh conditions, high costs, and the need for major investment mean it is unlikely that meaningful new supply emerges quickly, regardless of political outcomes.
What to watch next
The key signals will not just be tariff announcements. Watch for widening of measures into services or investment, difficulty sustaining consensus across European states, and any explicit linkage of the dispute to broader security commitments.
If the episode deepens into a structural rift, the long-term outcome is a world with higher geopolitical unpredictability – raising costs of capital and slowing growth. That is the channel through which a remote territorial dispute can become a global economic story.
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