It was another chaotic week on the world stage this week as President Donald Trump traded barbs with a variety of European leaders. Trump continued his push to acquire Greenland’s territory from Denmark, with the European Union (E.U.) responding with various economic and trade threats towards the U.S. The chaos threatened to re-ignite the trade war between the U.S. and Europe, bringing fresh uncertainty to the world of trade.
A possible deal to avoid trade escalation between the U.S. and Europe?
With Trump and E.U. leaders meeting at the World Economic Forum in Davos, Switzerland, Trump appeared to back off his threat to take Greenland by economic and military coercion as a deal was announced between both parties. The big question now is whether Trump has moved on from his threats over Greenland, and whether the E.U. re-engages the U.S. on the comprehensive trade deal reached last year.
Prior to Trump’s announcement, the European Parliament has announced it was suspending a major trade deal struck with the U.S. last July amidst the tariff war. That deal helped reduce tariffs. Soon after, markets roiled and Trump announced a “framework” deal on Greenland with the E.U. After Trump backed down, Europe left the door open to resume discussions over the nascent trade deal between the U.S. and Europe.
Is the U.S.-E.U. trade war restarting or is it in the rear-view mirror?
During the first half of 2025, the U.S. and Europe saw trade relations deteriorate after Trump’s tariffs were announced and imposed on a variety of E.U. countries. After the July deal was announced, the issue largely retreated from public view, but the latest developments mean tariffs are back on the menu.
Tariffs against most European goods are still at a 15% level, which is significantly higher than at the beginning of 2025. That number is likely to stay there unless there is a massive escalation by Trump over Greenland. A full restart of the U.S.-E.U. trade war is unlikely, as the escalation on trade negatively affects both the U.S. and the E.U. and there are mutual benefits to avoid escalation.
The E.U. has not fully committed to restarting talks to re-engage on trade but following Trump’s announcement of a “framework” deal on Greenland, the E.U. kept the door open to moving forward with the trade deal, avoiding any talk of possible escalation publicly.
If the E.U. chose to escalate trade tensions with the U.S. in order to extract further concessions from Trump on Greenland and other issues, it has tools to do so including the so-called “economic bazooka” that French President Emmanuel Macron alluded to earlier this week heading into the Davos summit. It could impose massive tariffs on U.S. goods, which would affect U.S. trade and the global economy.
