The Trump administration has temporarily withdrawn its threats to impose tariffs on European nations in response to their backing of Greenland’s sovereignty. However, given the possibility of this issue resurfacing, it is crucial to assess the economic consequences of pressuring treaty allies and balance them against any perceived strategic advantages.
Does the United States require ownership of Greenland for national security? The answer is no. From a defense standpoint, acquiring Greenland is neither necessary nor strategically beneficial. The U.S. already holds broad military access and operational rights on the island through NATO and the 1951 bilateral defense agreement with Denmark. This arrangement permits American forces unrestricted use of ports and airfields for collective security purposes and allows the construction and operation of defense infrastructure without undermining Danish authority.
This framework has supported continuous U.S. military operations in Greenland for decades, including early-warning radar systems and the Pituffik Space Base, now operated by the U.S. Space Force. Under existing agreements, Washington can modernize facilities, deploy personnel, and scale up capabilities as needed. Crucially, these rights ensure the U.S. can monitor missile launches, counter Russian activity, and maintain Arctic presence—even outside NATO—making territorial acquisition redundant.
What prompted the tariff threats, and how were they resolved? In reaction to heightened U.S. rhetoric about annexing Greenland, eight European countries—the UK, France, Germany, Norway, the Netherlands, Finland, Denmark, and Sweden—announced troop deployments to Greenland in coordination with local authorities. On January 17, 2026, the Trump administration responded by threatening 10 percent tariffs on these nations, set to rise to 25 percent by June 1 unless they endorsed U.S. acquisition of Greenland. However, on January 21, the administration reversed course. This retreat followed sharp negative reactions in financial markets: the S&P 500 dropped 2 percent in one day, and the 10-year Treasury yield reached a five-month peak. Notably, six of the eight targeted nations are EU members, marking the first instance in which the Trump administration proposed differential trade treatment for individual EU states—an action that challenges the EU’s integrity as a customs union.
What would be the economic impact of such tariffs, and who would bear the cost? Evidence strongly indicates that the threatened tariffs would severely disrupt transatlantic trade and that the burden would fall overwhelmingly on American businesses and consumers, not European exporters.
Trade disruption would be substantial. If the 25 percent tariffs had been implemented, imports from these European partners could have declined by up to 24 percent in some cases—a significant shock to one of the world’s most integrated economic relationships.
The financial weight of these tariffs would primarily affect domestic actors. Studies, including an analysis of over 25 million shipping transactions worth nearly $4 trillion by the Kiel Institute for the World Economy, show that about 96 percent of tariff costs are absorbed within the U.S., while foreign exporters cover only around 4 percent. In practice, this means tariffs act as a tax on American importers and households.
Beyond trade contraction, new tariffs would raise prices for consumers and reduce competitiveness for domestic producers. Data from Harvard’s Pricing Lab Tariff Tracker reveals that prices of imported goods have increased by more than 5 percentage points compared to a no-tariff scenario. Domestic prices have risen similarly, as diminished foreign competition enables U.S. firms to raise their own prices. Figure 2 illustrates this parallel rise in both imported and locally produced items.
Higher input costs would drive up domestic production expenses, making American-made goods pricier at home and less competitive internationally. This undermines U.S. industrial strength and could negate gains from policies designed to boost domestic manufacturing.
The impact would also be uneven across society. Small enterprises—97 percent of all U.S. importers—have been especially vulnerable to tariff-related uncertainty. Lower-income households have faced faster inflation than wealthier ones, as tariffs disproportionately affect everyday and budget-friendly products. According to Harvard’s tracker, the largest price increases since 2025 have occurred in:
– Household and durable goods (up approximately 4 percentage points since 2025, 8 points above pre-tariff trends);
– Food and beverages (up 3 points); and
– Health and medical products (up 2 points).
Lower-cost versions of goods often see price hikes nearly twice those of premium alternatives, limiting affordable options for price-sensitive consumers. As families tighten budgets, cheaper substitutes—often imports—are hit hardest.
In sum, escalating tariff pressure on European allies would worsen existing economic pressures rather than improve U.S. security. The costs would fall mainly on American workers, farmers, small businesses, and households, with little strategic return. Initiating another trade conflict risks long-term harm to U.S. competitiveness and consumer welfare, undermining the very resilience these policies aim to build.
Would Europe retaliate if similar threats emerged again, especially when it has held back before? Most likely, yes—because the current situation is seen as fundamentally different.
Europe’s restraint during the second Trump administration stemmed from prioritizing broader security ties and recognizing the value of the transatlantic economy, which includes nearly $1.5 trillion in annual trade. While these factors remain, the nature of U.S. pressure is now perceived as a direct threat to European sovereignty and the institutional foundations of the EU single market.
European capitals view both the method and intent of this coercion as unprecedented.
Method: Threatening different tariff rates on individual EU members based on their stance on Greenland violates a core institutional principle. The EU operates as a customs union with a unified external trade policy. Treating member states differently over foreign policy decisions strikes at the legal and political unity of the bloc.
From Brussels’ perspective, this is akin to a foreign power imposing varied trade penalties on individual U.S. states over issues like Taiwan or Israel. The U.S. would consider such actions an attack on federal integrity. The EU sees this behavior the same way.
Motive: The objective of the pressure also marks a departure from past disputes. The EU’s Anti-Coercion Instrument was created specifically to counter economic tools used to extract political or territorial concessions outside WTO frameworks. While previous U.S. tariff threats sought trade advantages, the recent demands targeted sovereignty and territory. By any standard, this constitutes economic coercion and a threat to an EU member’s sovereignty.
Under these circumstances, European leaders may conclude that failing to respond would invite further pressure and weaken the EU’s credibility. Retaliation may thus be seen not as escalation, but as institutional self-preservation.
If the EU retaliates, what might be targeted, and who would suffer? The short answer: all sides would face consequences—but the specifics matter.
The EU recently adopted its Anti-Coercion Instrument, sometimes called a “trade bazooka.” While the analogy is imperfect, it underscores the tool’s potential impact depending on how it’s used. Three possible retaliation paths exist, each increasingly escalatory.
Traditional Retaliation: Following precedent, the EU would aim to maximize political pressure while minimizing self-harm and preserving diplomatic exit routes. This approach mirrors a countermeasure package proposed nearly a year earlier, targeting high-visibility, geographically concentrated U.S. industries. The EU already has a $93 billion retaliation list covering exports such as aircraft and parts, automobiles, chemicals, plastics, medical devices, electrical equipment, and machinery, as well as agricultural goods like bourbon, whiskey, wine, beef, poultry, dairy, wheat, barley, oats, soybeans, corn, vegetable oils, rice, citrus, and orange juice.
Many of these sectors are already grappling with higher input costs from existing U.S. tariffs or facing retaliation elsewhere. The U.S. agricultural sector, in particular, remains under strain: soybean exports in 2025 were well below historical levels due to weaker demand from China, and farm bankruptcies in the first three quarters of 2025 were already 36 percent higher than the total for 2024.
— news from CSIS | Center for Strategic and International Studies
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Why Economic Coercion Over Greenland Would Backfire
The Trump administration has, at least temporarily, rescinded its threats to impose tariffs on European allies in response to their support for Greenland. But since this issue may arise again, it is important to understand the economic costs of coercing treaty allies and weigh them against the security benefits. n nQ1: Does the United States need to “own” Greenland to ensure its national security? n nA1: No. From a national security perspective, U.S. ownership of Greenland is unnecessary, militarily redundant, and strategically counterproductive. n nThe United States already enjoys extensive access, basing, and operational rights in Greenland under NATO and the 1951 U.S.-Danish defense of Greenland agreement. That agreement grants U.S. forces free access to Greenland’s ports and airfields for purposes of collective defense and explicitly authorizes the United States to construct, maintain, and operate military facilities without challenging Danish sovereignty. n nThis framework has enabled decades of uninterrupted U.S. military presence in Greenland, including early-warning radar installations and what is now the Space Force’s Pituffik Space Base. Under the 1951 agreement and NATO arrangements, the United States retains the ability to upgrade facilities, deploy personnel, and expand capabilities as security requirements evolve. Importantly, because of the 1951 agreement, Washington possesses everything it needs to monitor missile threats, deter Russia, and project power in the Arctic, even if it decides to leave NATO. n nQ2: Who did the Trump administration threaten tariffs with, why, and how did this get resolved (at least for now)? n nA2: In response to the U.S. escalation of its rhetoric around securing Greenland as part of the United States, eight European countries (the United Kingdom, France, Germany, Norway, the Netherlands, Finland, Denmark, and Sweden) announced the positioning of troops in Greenland, in coordination with Greenland’s government. In response, the Trump administration announced on January 17, 2026, that as of February 1, it would impose 10 percent tariffs on all eight countries, which would increase to 25 percent by June 1 if these countries had not formally supported the U.S. purchase of Greenland, before backing down on tariff threats on January 21. The climb-down has been attributed to the negative market reaction that followed, with the S&P 500 dropping 2 percent in a day after the tariff threats, and the 10 year Treasury yield rising to a five-month high. Importantly, six out of eight of these countries are EU member states, making this the first time the Trump administration threatened to treat individual EU states differently in trade policy, a major challenge to the foundation of the European Union itself as a customs bloc. n nQ3: What would be the direct economic cost of tariffs, and who would pay them? n nA3: The available economic evidence points to two clear conclusions—the previously threatened tariffs would sharply disrupt transatlantic trade, and the economic costs would fall overwhelmingly on U.S. firms and households rather than European exporters. n nThe trade disruption would be significant. n nRecent estimates suggest that if the Trump administration followed through on its threatened 25 percent tariffs, imports from European partners could fall by as much as 24 percent for some countries. Such a contraction would represent a major shock to one of the world’s most deeply integrated trading relationships. n nThe economic incidence of these tariffs, however, would fall primarily on Americans. A large body of empirical research shows that U.S. tariffs are passed through almost entirely to domestic importers and consumers. Research by the Kiel Institute for the World Economy, drawing on more than 25 million shipping transactions worth nearly $4 trillion, finds that approximately 96 percent of tariff costs are borne domestically, with foreign exporters absorbing only about 4 percent. In other words, tariffs function overwhelmingly as a tax on U.S. firms and households, not on foreign producers. n nIn addition to the disruption in trade, evidence suggests that the economic burden of new tariffs on European partners would fall overwhelmingly on Americans, increasing costs for consumers and reducing competitiveness for producers. n nThis near-complete pass-through is visible directly in prices. The same research documents a surge in U.S. customs revenue of roughly $200 billion in 2025, revenue paid almost entirely by U.S. businesses and consumers. These findings are reinforced by independent evidence from Harvard’s Pricing Lab Tariff Tracker, which shows that imported goods prices are more than 5 percentage points higher than they would have been absent tariffs. Domestic prices rise by similar magnitudes, as reduced foreign competition allows U.S. producers to increase prices as well. Figure 2 tracks these parallel increases in imported and domestically produced goods. n nBy raising the cost of these inputs, tariffs would push up production costs inside the United States, making U.S.-made goods more expensive at home and less competitive abroad. This dynamic directly undermines U.S. industrial competitiveness and risks offsetting the intended benefits of other industrial and trade policies aimed at strengthening domestic production. n nThe distributional effects are especially concerning. In 2025, small businesses—which make up 97 percent of all importers—have been particularly impacted by tariffs and the uncertainty they create. At the same time, lower-income households have experienced faster price increases than higher-income consumers. Tariffs raise prices most sharply for everyday goods and lower-cost alternatives, making them functionally regressive. n nAccording to Harvard’s Tariff Tracker, since 2025, the largest tariff-driven price increases have occurred in n nhousehold and durable goods (approximately a 4 percentage point increase since 2025, and an 8 percentage point increase relative to pre-tariff trends); n nfood and beverages (3 percentage point increase); and n nhealth and medical products (2 percentage point increase). n nLower-priced and “budget” varieties often experience price increases nearly double those of higher-end goods, leaving cost-conscious consumers with few meaningful substitutes. As households attempt to stretch limited budgets, traditional escape hatches—cheaper brands or imports—are hit hardest. n nIn short, escalating tariff pressure against European allies would compound existing economic strains rather than enhance U.S. economic security. The direct economic costs would be borne primarily by U.S. workers, farmers, small businesses, and consumers, while delivering little in the way of strategic or economic gain. Opening another front in the trade war risks sustained damage to U.S. competitiveness and household welfare, undermining, rather than strengthening, the industrial and economic resilience these policies are intended to promote. n nQ4: If the United States were to threaten similar tariffs again, would Europe retaliate, and if so, why now, when it has often refrained in the past? n nA4: Almost certainly, because this case is viewed in Europe as fundamentally different. n nEuropean restraint so far in the second Trump administration has reflected both the prioritization of broader European security interests and recognition of the depth and importance of the transatlantic economic relationship, which approaches $1.5 trillion in annual trade. While neither of these underlying conditions has changed, the nature and rationale of U.S. coercion are now viewed as fundamentally different and as threatening European security, both territorially and through the institutional foundations of the European common market. n nIn European capitals, this coercion is seen as different in both method and motive. n nMethod of Coercion: The threat to impose different tariff rates on individual EU member states based on their positions on Greenland crossed an institutional red line. The European Union is a customs union; the free movement of goods and a common external trade policy are foundational to the European project. Differential treatment of member states based on sovereign foreign-policy decisions strikes at the legal and political core of the Union. n nFrom Brussels’ perspective, this would be analogous to a foreign power imposing differential trade measures on individual U.S. states in response to their positions on Taiwan or Israel. The United States would rightly view such actions as an attack on the federal union itself. The European Union views this behavior in the same way. n nMotive of the Coercion: The purpose of the recent pressure also marks a sharp departure from previous disputes. The European Union’s Anti-Coercion Instrument is explicitly designed to address the use of economic tools in disputes not covered by the World Trade Organization settlement, particularly when such pressure threatens sovereignty or fundamental rights. While past U.S. tariff threats sought economic concessions, the recent demands aim to extract political and territorial concessions unrelated to trade. By any reasonable definition, this constitutes a threat to the sovereignty of an EU member state and a clear act of economic coercion. n nUnder these conditions, European leaders may conclude that failing to respond would invite future coercion and erode the credibility of the European Union as a political and legal union. Retaliation may therefore be viewed not as escalation, but as institutional self-defense. n nQ5: If the European Union were to retaliate against coercion, what would be hit and who would be hurt? n nA5: The short answer is everyone—but the details matter. n nThe European Union recently passed its Anti-Coercion Instrument, designed for precisely this type of situation. European officials sometimes refer to it as a “trade bazooka.” The analogy is imperfect but useful in one respect: as with any powerful weapon, the impact depends on where it is aimed. While no one can predict the course of a trade war, three paths for EU retaliation are worth consideration, each progressively more escalatory. n nTraditional Retaliation: If the European Union follows its traditional approach, it will seek to maximize political impact while minimizing damage to its own economy and preserving off-ramps. This option would resemble the retaliation package the European Union proposed nearly a year ago. Those countermeasures are explicitly designed to maximize political leverage by targeting industries with high visibility and geographic concentration. The bloc already has a retaliation package covering €93 billion in U.S. exports, including industrial goods—aircraft and parts, automobiles and parts, chemicals, plastics, medical devices, electrical equipment, and machinery—as well as agricultural and food products, such as alcohol (bourbon, whiskey, and wine), meat and dairy (beef, poultry, and livestock), grains and oils (wheat, barley, oats, soybeans, corn, vegetable oils, and rice), and fruits and juices (citrus and orange juice). n nMany of these industries are already absorbing higher input costs from existing U.S. tariffs or facing retaliation on other trade fronts. U.S. agriculture, in particular, remains under acute strain: soybean exports in 2025 were well below historical norms due to reduced demand from China, and farm bankruptcies in the first three quarters of 2025 were already 36 percent higher than all of 2024.