International credit ratings agency Fitch Ratings has stated that the threat of new US tariffs linked to Greenland, together with the possibility of European countermeasures, marks a significant escalation in transatlantic tensions, with implications extending beyond trade into growth, defense spending and geopolitical stability.
As previously reported by SteelOrbis, US President Donald Trump has announced plans to impose an additional 10 percent tariff on Denmark and seven other European countries starting February 1, with the rate set to rise to 25 percent from June 1, remaining in force until an agreement is reached on the complete purchase of Greenland. Fitch assumes that any such tariffs would be levied on top of existing duties.
Legal uncertainty clouds implementation outlook
Fitch emphasized that the actual implementation of the proposed tariffs remains highly uncertain. The likely legal basis, the International Emergency Economic Powers Act, is currently under review by the US Supreme Court. Even if the court were to rule against its use, Fitch noted that alternative legal instruments could potentially be employed.
The agency also pointed to possible domestic resistance within the US, given concerns over inflation and the broader geopolitical consequences of escalating trade tensions with Europe.
Potential economic impact on Europe
From a macroeconomic perspective, Fitch estimates that a 10 percent US tariff could reduce European GDP by around 0.5 percent by the end of 2027 compared with its baseline scenario. An escalation to a 25 percent tariff could roughly double that impact.
Germany would be the most exposed economy. Under a 10 percent tariff scenario, German GDP could be around 0.8-0.9 percent lower, with losses potentially doubling if tariffs were raised to 25 percent.
EU response likely to be restrained, but risks remain
Fitch expects that, even if US tariffs were enacted, the EU’s initial response would likely remain relatively restrained, reflecting concerns that a full-scale trade conflict could undermine US commitment to European security. Nevertheless, EU institutions have prepared potential countermeasures affecting around €95 billion of US imports.
The agency noted that some member states, including France, have floated the use of the EU’s anti-coercion instrument, which would allow for broader retaliation, potentially extending beyond goods trade to services, including US technology firms.
For Denmark, Fitch considers sovereign credit fundamentals strong enough to absorb any direct economic impact from a potential loss of Greenland, given the island’s small economic weight and Denmark’s low public debt. However, the agency cautioned that second-round political and strategic consequences could still be material.
Pressure to raise defense spending intensifies
Fitch added that the episode is likely to reinforce pressure on European countries to increase defense spending. NATO members have agreed to raise total defense expenditure to five percent of GDP by 2035, including 3.5 percent for core defense. Some countries, notably Germany and several northern and eastern European states, are already accelerating this shift, while others may move more gradually.