Wall Street reacts to Greenland tariff threats
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U.S. stock futures are under pressure and European shares fell after President Trump threatened tariffs on eight European nations for opposing his efforts to control Greenland.
Why it matters: Tariffs are not an issue investors can put behind them.
State of play: Investors are showing concerns about a brewing trade war. The dollar is lower, while gold, which typically benefits from geopolitical tensions, is up.
- Germany said the Trump administration had reached a red line with its tariff threats, which could upend the levy agreements already reached between the U.S. and the European Union and the U.K. last year.
What they're saying: "Watch for any dumping of dollar-denominated assets," Joe Brusuelas, chief economist at RSM US, tells Axios.
- European nations own $8 trillion of U.S. bonds and equities.
- They could move to adjust that if trade tensions continue to escalate.
- U.S. Treasury yields are up this morning after a selloff in Japanese bonds.
Zoom in: The E.U. could put retaliatory tariffs on more than $100 billion of U.S. goods, which could exacerbate inflation for Americans.
- If inflation accelerates, the Federal Reserve could keep interest rates on hold, or even potentially raise rates.
- That would be in opposition to the Trump administration seeking lower rates amid an affordability crisis.
Zoom out: The overall effective tariff rate could continue to come down "in a plain sacrifice to the inflation and mid-term election gods," Henrietta Treyz, a co-founder at Veda Partners, writes in a note to clients.
Reality check: Goldman Sachs economists say the potential 10% levy on these European nations would have "very small" inflation effects.
- The president signaled the tariffs could increase to 25% by June and would continue to increase until a deal is reached for the purchase of Greenland.
What to watch: The Supreme Court is set to rule on the legality of Trump using the International Emergency Economic Powers Act to declare tariffs such as this, possibly as soon as this week.
- Even if the court says the law cannot be used to impose these tariffs, the administration could use other ways to inflict levies on European nations.
