US-Europe Trade Relationship Under Uncertainty
The United Kingdom faces the risk of a recession if US President Donald Trump proceeds with his plan to raise tariffs to 25% in early June. This move could potentially reduce the country’s economic growth by £22 billion ($29.5 billion), according to a World Bank report.
Trump’s proposed tariff hike follows warnings issued to eight European nations concerning his Greenland acquisition plans. These warnings signal the possibility of steep import taxes and fuel concerns of a US-Europe trade conflict.
The countries potentially affected by these tariffs are Denmark, Norway, Sweden, the UK, France, Germany, the Netherlands, and Finland.
During the weekend, Trump released a statement indicating that as of February 1, eight European countries would face a 10% tariff on all goods imported to the United States unless they permit him to proceed with his plan to acquire Greenland, the world’s largest island and an autonomous territory within the Kingdom of Denmark.
However, if these countries still do not agree to let him proceed with his plan for the complete and total purchase of Greenland, he stated that he would be left with no other choice but to increase the tariff rate to 25%, taking effect on June 1.
Following the president’s announcement, analysts in the UK described the situation as severe. They cautioned that the UK, as a victim of these measures, may face a sharp decline in economic growth, given that the US is a major trade partner.
Capital Economics, a global firm providing independent economic analysis, forecasts, and data, shared reports indicating that the UK’s Gross Domestic Product (GDP) may decline by around 0.3% to 0.75% if Trump’s additional tariffs are imposed above the current 10% tax on UK imports.
Following this report, individuals in the country have raised concerns about the fate of UK trade. Responding to these concerns, Paul Dales, Chief UK Economist at Capital Economics, pointed out that, “Since the UK economy is currently growing by 0.2-0.3% each quarter, if this negative impact happened all at once, it could lead to a recession.”
Consequently, sources reported that stock markets significantly declined following the US president’s tariff announcement, which is set to impact Britain and the other seven European countries until they approve his plans for the Arctic island from Denmark.
While these developments unfolded, Keir Starmer, the Prime Minister of the United Kingdom, welcomed James Johnson, the Speaker of the United States House of Representatives, at Downing Street on Tuesday, January 20. This meeting occurred before Johnson delivered his speech to Parliament, focusing on the 250th anniversary of independence from London.
In a statement, Starmer indicated that the UK will not retaliate against the US president’s move, arguing that the United States remains its key trade partner despite Trump’s mounting pressure on the trade relationship.
Still, European stocks underperformed as carmakers faced difficulties amid Trump’s intensified push to acquire the Arctic island from Denmark.
European Stocks Decline Amid US President's Tariff Threats
Regarding Trump’s recent announcement concerning eight European countries, BMW’s shares plummeted by up to 7%. Similarly, the Dax index in Frankfurt declined by as much as 1.5%, and the Cac 40 in Paris fell by up to 1.8%. The FTSE 100 also drastically declined by around 0.4%.
However, the impact on the FTSE 100 was less severe than that on other companies because several investors backed its major defense firms amid escalating geopolitical tensions.
Interestingly, this situation differed from that experienced in the mining sector. As several companies faced operational declines, mining firms listed in London posted strong profits as the price of precious metals, such as gold, reached a record high.
Meanwhile, as Trump awaits a decision on whether European nations will change their minds and approve his plans, sources close to the situation revealed that European countries have condemned his tariff threats against Greenland, calling them blackmail. Some countries, such as France, suggested responding with various untested economic countermeasures.