Prime Minister Sir Keir Starmer has declared that a trade war is "in no-one's interest," ruling out immediate retaliatory tariffs against the United States. This comes as former President Donald Trump escalates a geopolitical standoff over Greenland, directing new tariff threats squarely at NATO allies who oppose his bid to purchase the Arctic territory.
The Core of the Dispute: Greenland's Sovereignty
Donald Trump's ambition to acquire Greenland, justified on national security grounds and motivated by its vast mineral wealth, has been firmly rejected. The Danish-controlled territory and European leaders maintain that any change in ownership is a matter solely for the people of Greenland and Denmark. In response to this refusal, Trump announced at the weekend a phased plan to increase trade tariffs on NATO nations that do not support his proposal.
Specifically, he has threatened to impose a 10% tariff "on any and all goods" exported to the US from Denmark, Norway, Sweden, the UK, France, Germany, the Netherlands, and Finland, effective from 1 February. This initial levy is designed to make European goods less competitive for American importers, directly harming companies and economies. The president has warned this rate could skyrocket to 25% from June if no agreement is reached, leaving European capitals with less than two weeks to formulate a response.
Immediate Market Reactions and Economic Warnings
Financial markets have already signalled deep unease at the prospect of a trade rift within the Western military alliance. The dollar has weakened, oil prices have fallen, and European stock markets tumbled in initial trading. The International Monetary Fund (IMF) has issued a stark warning, labelling the situation a "major risk" to the global economy if Trump follows through.
This tactic echoes previous Trump-era trade confrontations, where market volatility sometimes prompted a White House climbdown—a pattern traders once dubbed "TACO" or "Trump Always Chickens Out." However, the specific targeting of core NATO allies over a geopolitical acquisition marks a dangerous and unprecedented escalation.
Potential Damage to the UK and EU Economies
For the United Kingdom, the threat arrives at a fragile economic moment. The UK already pays a 10% tariff on most goods to the US, a legacy of earlier trade disputes. While services—which make up almost two-thirds of UK exports to America—remain unaffected, key goods exporters like carmakers and pharmaceutical firms face severe new pressure.
Analysis by Capital Economics suggests a worst-case scenario could reduce UK GDP by 0.30% to 0.75%, significantly heightening the risk of recession. "The long-term political and geopolitical consequences would be much greater," said chief UK economist Paul Dales. "One could be that the UK is nudged closer to the EU, at least when it comes to trade in goods."
Within the European Union, the broad US additional tariff rate currently stands at 15%. Germany, whose manufacturing powerhouse relies heavily on goods exports to the US, is particularly vulnerable. Diplomatic divisions are emerging, with France advocating for retaliatory tariffs and the deployment of the EU's defensive trade instruments, while the majority of bloc leaders seek a diplomatic solution to avoid a protracted and damaging conflict.
