So far, the threat of US jacking up the tariffs against all those that stand between Donald Trump and his ambitions to take over Greenland remains just that, a threat.
That said, it’s a very real threat.
The world has been through this process before, so the numbers have been crunched on the likely impact of such a move.
Just to recap, Mr Trump posted on social media on Saturday that he would impose tariffs of 10% on the UK, France, Germany, Finland, Denmark, Norway, the Netherlands and Sweden from 1st February, rising to 25% on June 1, unless an agreement to “acquire” Greenland is reached.
Putting aside the legality of such a move (the US Supreme Court is still mulling over the legality of the last year’s “liberation day” tariffs), and that the president has not always followed through on his threats (e.g. the 10% tariff on Canada over some TV ads featuring Ronald Reagan dissing tariffs), the bellicose threats may not have much impact in reality.
It’s also worth noting that EU has its own package of retaliatory measures in the breech.
The EU’s options include a package of its own tariff on 93 billion euros ($160 billion) of US imports that was suspended for six months in early August and the range of measures under the Anti-Coercion Instrument that could hit US services trade or investments.
As Capital Economics Chie Economist Neil Shearing says, “imposing tariffs on a handful of EU countries — but not on the EU as a whole — would also presumably result in widespread rerouting of trade within the free trade bloc in order to avoid the tariffs.”
Mr Shearing says if the past year has shown anything, it is that the macroeconomic effects of tariffs are both uncertain and non-linear.
“A 10% tariff could reduce GDP in those economies by around 0.1%, while a 25% tariff could knock 0.2–0.3% off output,” Mr Shearing said.
“The impact on the other countries would probably be smaller.
“All else equal, such tariffs could add around 0.1-0.2%-pts to US inflation, although, as recent experience has shown, these effects can easily be offset by other factors.”
However, Mr Shearing notes the political ramifications of US attempts to seize Greenland would be far greater than the economic ones.
The rupture of transatlantic relations and irreparable damage to NATO spring to mind.
“While European governments have shown a willingness to compromise with the US on issues such as trade, defence spending and Ukraine, sovereignty over Greenland is unlikely to be negotiable,” Mr Shearing said.
“Denmark’s government has no authority to transfer the territory without the consent of Greenland’s population.
“That said, short of a transfer of sovereignty, Europe would probably be open to wide-ranging concessions — making it possible to envisage a “deal” that Trump could present as a victory.”