For four days, President Trump had again raised the prospect of a transatlantic trade war and threatened to punish European nations if they did not meet his demands to hand Greenland to the United States.
The threats caused the stock market to crash and led to frantic activity. European leaders called emergency meetings, frantically called the president and suspended efforts to reach a trade deal with the United States that they had painstakingly negotiated and agreed to only months earlier.
Then Mr. Trump did what he often does. He backtracked, saying he had reached “the framework of a future agreement” for Greenland and the Arctic. Little information was initially available about the deal, but Mr Trump claimed it would be “great” for the United States. He said the tariffs he planned to impose against eight European countries from February 1 would no longer have to come into force. The stock markets skyrocketed.
The president may have left the looming trade war with Europe behind him as quickly as he started it, but what he left behind was another destabilizing moment in global trade. And as these moments pile up, they have their own implications — including growing doubts about the value of working with the president and undermining some parts of the trading system he and his advisers worked to create. His approach has also resulted in countries moving away from the United States, moving toward each other and, more importantly, turning toward China.
In the second year of his second term, Mr. Trump has had ample opportunity to reshape the global trading order on his own terms. But that doesn’t seem to have quenched his urge to destroy everything. The president continues to goad the country’s closest trading partners with new tariff ultimatums and even threatens to upend his own trade deals, sometimes even before they are finalized.
Global companies and foreign leaders had hoped this year would mark the end of tariff uncertainty. Although the tariffs would be significantly higher, the world would at least be prepared for greater predictability as the American president’s trade vision has been enshrined in a series of trade agreements between the United States and its trading partners. But Mr. Trump appears more intent than ever on bringing new chaos to the global trading order.
Concessions from trading partners have not tempered this urge. Over the past year, many governments have tried to appease Mr. Trump. One country after another dropped its own tariffs and accepted higher American taxes on its exports in return for trade deals that contained fewer tariffs than the president had threatened.
The only notable exception to this trend was China. Instead of giving in to Mr. Trump’s demands, Beijing engaged in a trade dispute that ultimately hurt American farmers, automobile and defense manufacturers, and the Chinese economy. That approach, made possible by America’s heavy reliance on China for key minerals and agricultural exports, forced Trump to concede.
Despite the threat of retaliation, Europe also took a conciliatory approach. European leaders reluctantly acknowledged the president’s point that their imbalanced trade was a problem and pledged to reduce tariffs on American products, even as the United States sharply increased its own tariffs on European exports.
The European Union struck a trade deal that included a 15 percent tariff on its imports and the promise of peace – but it didn’t last long. As Europe struggled to get its parliament to approve necessary changes to the deal, Mr. Trump made threats against Greenland that were too drastic for European leaders to accept. After a threatening speech on Wednesday at the World Economic Forum in Davos, Switzerland, in which Mr. Trump called on Denmark to sell Greenland to the United States and made veiled threats to both Europe and Canada, the European Union has officially halted work on its trade agreement with the United States.
A senior European official suggested on Sunday that the trade deal could ultimately be finalized if the situation in Greenland is successfully resolved.
The EU agreement is not the only trade agreement that the president has questioned recently. This month, Mr. Trump dismissed the U.S.-Mexico-Canada agreement he negotiated and signed in his first term as “irrelevant,” casting doubt on whether the deal will survive negotiations this year. For many North American companies, the significant tariff exemptions under the USMCA were the reason they did not suffer even more from Trump’s trade war.
Adding further uncertainty is the fact that the Supreme Court is considering Mr. Trump’s use of emergency law to enact many of his tariffs. If the Supreme Court rules against Mr. Trump, it could usher in another period of volatility as many of the president’s tariffs are eliminated but then replaced by other levies.
“I don’t think the tariff uncertainty is over this year,” said Edward Alden, senior fellow at the Council on Foreign Relations.
Displace allies
The past year suggests that Trump respects above all a forceful response from a country like China capable of inflicting economic damage on the United States, rather than an attempt at cooperation. The president also appears to face little criticism of the “madman theory” of foreign policy, which convinces foreign leaders that he is erratic and unpredictable.
But critics say the approach has other drawbacks. As the United States is increasingly seen as a less reliable partner, other governments are looking elsewhere for business and trade deals or making preparations for greater self-reliance.
This often led to countries moving closer to China – strengthening the geopolitical influence of America’s main competitor. This month, Canada entered into a new partnership with China that would, among other things, allow Beijing to export more electric vehicles to North America.
In response to the threats from Greenland, the European Union had discussed using a counter-coercion tool against the United States that it had developed to deal with rivals such as China.
In his remarks in Davos, He Lifeng, China’s vice premier, emphasized China’s partnership with other countries and said it has “remained steadfast in supporting multilateralism and free trade.”
Mr. Alden said he believed Mr. Trump’s tactics would “force the Europeans to change direction” from their previous strategy of appeasing the United States.
There has been a lot of grumbling in Europe that the government has given too much away to Mr. Trump, Mr. Alden said. This incident will likely “strengthen any skeptics who will say, ‘Look, it doesn’t matter what we give Trump, he’s going to want more,'” he added.
“Trump has succeeded in making China the lesser of two threats to the global trade and economic system, and that is a remarkable achievement because China poses all sorts of threats to the global trade and economic system,” Alden said.
In his remarks on Wednesday, Trump argued that the United States provided Europe’s defense and got “nothing” in return.
But Mark Carney, the prime minister of Canada, pointed out in his speech that the United States had provided the world with public goods – such as collective security, open sea lanes and a stable financial system – that the rest of the world followed its agenda.
Mr. Carney said clearly that powerful countries were now using economic integration as a means of coercion and called on Canada to go its own way.
“The middle powers need to work together because if we’re not at the table, we’re on the menu,” he said.
Ursula von der Leyen, President of the European Commission, also called for the creation of “a new form of European independence” in her speech in Davos on Monday.
“Nostalgia will not bring back the old order,” she said, adding: “If this change is permanent, Europe must also change permanently.”
Mr Trump’s advisers had downplayed the president’s threats. Trade Secretary Howard Lutnick called the tensions with Europe a “kirfuffle” and predicted that “they will end in a sensible way.”
But on Tuesday evening, as Mr. Lutnick addressed attendees at a dinner, he was reportedly harassed by former Vice President Al Gore, and European Central Bank President Christine Lagarde walked out of the bank. On Monday, the Chinese Embassy in the United States released an AI-generated video about
Jake Colvin, president of the National Foreign Trade Council, a Washington-based trade association, said the threats from Greenland felt “different.” They are more than just the latest example of the president using tariffs as a foreign policy tool, he said.
“We are quickly alienating one of our most important geopolitical allies when we should be focused on building on the progress the president has made in trade relations and joining forces to address the growing geostrategic threat from China,” he added.
Matthew Ryan, head of market strategy at global financial services firm Ebury, had predicted Mr Trump would back down. He noted that prediction markets suggested the tariffs would not go into effect and said his base case was a “TACO” – an acronym for “Trump Always Chickens Out” that traders coined last year after Mr. Trump repeatedly pushed back on tariff threats.
“As we know from recent history, Trump is using these tariffs as a blunt instrument and negotiating leverage to impose his will on the world stage.” But Mr Ryan added: “This cavalier attitude is becoming an extremely risky tactic.”
Jeanna Smialek contributed reporting from Brussels.