Trump's era of volatility returns
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President Trump threatens broad tariff hikes on historic allies. Financial markets are reeling. It's unclear whether the administration backtracks.
- You would be forgiven for thinking we were talking about the spring of 2025. This is the current backdrop, one that feels similar to a period of extreme uncertainty that investors and CEOs may have believed was behind us.
- This time, the issue at hand is Trump's effort to coerce NATO ally Denmark into handing over Greenland.
Why it matters: This weekend's events — and the fallout in financial markets evident Tuesday morning — are reminders that there might not be a magical pivot point where the economic, trade and geopolitical outlooks suddenly look more certain under Trump.
- The only certainty is that little is permanently settled. Anything can be upended at any point, making the economic outlook that much foggier.
By the numbers: The S&P 500 is down more than 1% and the dollar is down 0.9% against a basket of major currencies, while the yield on the 10-year Treasury note is up roughly 13 basis points from Friday.
What they're saying: "The proposed additional tariffs are a mistake, especially between long-standing allies," European Commission president Ursula von der Leyen said in a speech at the World Economic Forum in Davos, Switzerland, on Tuesday.
- "The EU and U.S. have agreed to a trade deal last July. And in politics as in business — a deal is a deal. And when friends shake hands, it must mean something," von der Leyen added.
- That's not the Trump 2.0 reality, however.
Reality check: As one bank CEO told Axios on the sidelines of Davos: "Whatever happens before tomorrow can be turned over again when Trump speaks," referring to the U.S. president's planned address Wednesday to the conference.
- Deregulation and imminent tax cuts were the anticipated tailwinds for corporate America, but they were disrupted by "Liberation Day" and the volatile way the tariffs were rolled out.
- Geopolitical concerns are happening alongside continued Davos excitement about AI investment, especially in the U.S. That helped support the economy's resilience last year, and it's possible this will be the case again, despite concerns about tariff whiplash.
- "The U.S. economy just continues to power ahead with full employment, despite a lot of macro uncertainty," Franklin Templeton's Rich Nuzum tells Axios in Davos. America has "an economic flywheel that's hard to stop."
Driving the news: The U.S. is set to impose an additional 10% tariff on eight NATO allies starting Feb. 1, unless Denmark agrees to sell Greenland to the United States.
- Without a deal (unlikely) or Trump delays and/or backtracks (unknown), higher tariffs on imports from these nations look like a near certainty. Absent a deal, Trump said in his Truth Social post on Saturday that tariffs would go up to 25% in June.
Zoom out: The economic and inflationary effects of Trump's tariffs have been muted, especially relative to economists' expectations. Another round of tariffs presents a new test to the so-far resilient U.S. economy.
- It also undermines the meaning of the slew of trade deals the White House negotiated over the course of 2025 — agreements that helped soothe uncertainty fears in the financial markets.
