Call for Calm Amidst Trade Tensions
Scott Bessent, the US Treasury Secretary, advised European nations on Tuesday against responding to the trade tariffs announced by President Donald Trump concerning the Greenland dispute. Speaking at the World Economic Forum in Davos, Bessent requested that countries and businesses exercise patience and observe the unfolding situation.
President Trump had previously indicated his intention to impose 25% tariffs on several European countries as part of his efforts to acquire Greenland, which is currently an autonomous territory under Danish control. Bessent referenced the trade conflict between the United States and China from the previous year as an example of what Europe should avoid. He suggested that countries would be making an error if they attempted to implement similar retaliatory measures against Washington, especially as global markets experienced declines due to the political tensions.
“I would say this is the same kind of hysteria that we heard on April 2,” Bessent stated to reporters at the forum. “There was a panic.” He elaborated, “What I am urging everyone here to do is sit back, take a deep breath, and let things play out. The worst thing countries can do is escalate against the United States.”
Bessent emphasized that Trump's threats regarding Greenland are distinct from other trade agreements. He urged all nations to adhere to their existing trade agreements, noting that these are finalized and provide stability for all parties involved.
Treasury Secretary Dismisses Debt Concerns
Furthermore, Bessent expressed his belief that European countries would not sell off their American debt holdings in response to the Greenland crisis. He characterized predictions of Europe ceasing to lend to the US and divesting American treasuries as a fabricated narrative lacking logical foundation.
He criticized the media for giving excessive attention to a Deutsche Bank report on the matter, labeling the coverage as hysterical. “I think it is a completely false narrative. It defies any logic, and I could not disagree more strongly,” he asserted.
This issue holds significance given that the US national debt exceeds $38 trillion, with a deficit of $1.78 trillion recorded in 2025. A cessation of purchases of American debt by major investors would increase borrowing costs for the US and diminish the value of existing debt held by investors.
Bessent appeared to be referencing research published on Sunday by George Saravelos of Deutsche Bank. As previously reported, Saravelos highlighted that Europe not only has interests in Greenland but also holds substantial amounts of American treasury bonds. Saravelos wrote that despite its military and economic prowess, America possesses a critical vulnerability: its reliance on other countries to finance its obligations through significant external deficits. Europe stands as the primary lender to the United States.
“European countries own $8 trillion of US bonds and equities, almost twice as much as the rest of the world combined,” Saravelos noted. He questioned why Europeans would continue such investments when the economic stability among Western partners is being severely disrupted.
Financial markets consider US government debt to be risk-free and use it as a benchmark for pricing other assets. Bessent maintained that European governments would continue to hold this debt.
EU Leaders Promise Firm Response
The Treasury Secretary is part of the largest American delegation ever assembled for Davos. President Trump is scheduled to address the forum on Wednesday.
European Commission President Ursula von der Leyen stated that Trump's economic threats concerning Greenland constitute a mistake that violates a trade agreement established between the partners last July. “The European Union and the United States have agreed to a trade deal last July,” von der Leyen declared in her address at the forum on Tuesday. “In politics as in business, a deal is a deal. And when friends shake hands, it must mean something.”
She indicated that the bloc's response would be firm, unified, and measured, although she did not specify the nature of this response. Senior EU diplomats convened for emergency discussions on Sunday and considered reinstating plans to impose tariffs on £81 billion worth of American goods. These tariffs had been temporarily suspended following the trade deal with Trump last summer.
France has already expressed its desire for the EU to utilize its anti-coercion instrument, which has the capacity to target foreign investment, financial markets, and trade. EU leaders are set to convene for an emergency session in Brussels on Thursday to deliberate on potential response strategies.
Neil Shearing of Capital Economics wrote in a Sunday note that a tariff increase from 10% to 25% could reduce GDP in affected NATO countries by 0.1 to 0.3 percentage points and contribute 0.1 to 0.2 points to American inflation. “The political ramifications would be far greater than the economic ones,” Shearing commented. He cautioned that any American action to forcibly acquire or pressure Greenland could inflict irreparable damage on NATO.
European officials have asserted that Greenland's independence is a boundary they will not permit to be crossed. Meanwhile, the Trump administration has shown no signs of backing down.