Global markets were jolted on Tuesday after US President Donald Trump’s renewed push to wrest control of Greenland from Denmark escalated transatlantic tensions, triggering the sharpest sell-off in US assets since October and reviving fears of a broader ‘Sell America’ trade.
US stocks tumbled across the board, the dollar weakened, and long-term Treasury yields edged higher, an unusual combination that signalled growing unease among investors who have largely brushed aside geopolitical shocks in recent years.
All three major US equity indices posted their sharpest single-day losses since October 10, with the S&P 500 and the Nasdaq Composite falling below their 50-day moving averages.
The S&P 500 lost 143.15 points, or 2.06 per cent, to end at 6,796.86 points, while the Nasdaq Composite gave up 561.07 points, or 2.39 per cent, to 22,954.32. The Dow Jones Industrial Average fell 870.74 points, or 1.76 per cent, to 48,488.59.
Markets react to political risk
The sell-off followed Trump’s threat to impose tariffs on several European allies unless they backed US efforts to acquire Greenland, a self-governing territory of Denmark that holds strategic importance in the Arctic.
Tuesday was the first opportunity for US investors to act on Trump’s weekend comments, given the market holiday for Martin Luther King, Jr. Day.
This included Trump saying additional 10% import tariffs would take effect on February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Great Britain.
Unlike earlier trade disputes, which were framed around protecting domestic industries or narrowing trade deficits, the current standoff links tariffs directly to territorial and geopolitical objectives, introducing a layer of uncertainty that markets struggle to price.
Traders sold US equities and the dollar simultaneously while also demanding higher yields to hold long-dated Treasuries. Such a move suggests confidence in US assets as the world’s default safe haven may be weakening, at least temporarily.
Why this trade war feels different
In a report, The Wall Street Journal said that Trump’s latest tariff threats represent a sharp break from past economic coercion.
“A country will tolerate a lot of economic misery rather than giving up territory,” the newspaper’s economics commentator argued, pointing out that tariffs aimed at territorial concessions are far less likely to achieve quick results than those targeting trade imbalances.
The tariffs would increase to 25 per cent on June 1 and continue until a deal was reached for the US to purchase Greenland, Trump wrote in a post on Truth Social.
Trump has vowed to “100 per cent” follow through on his threat to impose tariffs on European countries who oppose his demand to take control of Greenland.
That raises the risk of a prolonged standoff, with repeated rounds of tariffs and retaliation, rather than a short-lived negotiating tactic.
Europe braces for fallout
European leaders have pushed back strongly against Trump’s remarks, with officials in Denmark and Germany reiterating that Greenland is not for sale. The political resistance increases the likelihood of retaliation if tariffs are imposed.
Goldman Sachs economists warned that even a limited tariff package could dent European growth. In a note, the investment bank said another round of US tariffs, coupled with European countermeasures, could shave up to 0.3 per cent off the region’s GDP.
While the hit may appear modest, Goldman cautioned that the broader impact on confidence and investment could be more damaging, especially if tensions persist.
Implications for the US economy
For the US, the risks are more complex. Higher tariffs could push up import costs, weigh on corporate margins, and reignite inflation pressures at a time when the Federal Reserve is trying to steer the economy towards a soft landing.
More importantly, the episode has unsettled investors who had assumed that Trump’s second-term policies would prioritise growth and market stability, even if delivered through protectionist means.
The return of the “Sell America” trade, where stocks, the dollar and bonds all fall together, suggests that assumption is being tested.
What investors are watching
Markets will now focus on whether Trump follows through on his tariff threats and how quickly Europe responds. Any sign of de-escalation could stabilise sentiment. Escalation, however, risks turning a political gambit into a full-blown economic confrontation.
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