Renewed tariff threats by U.S. President Donald Trump against European allies, amid escalating tensions over Greenland, have reignited discussion of a potential “Sell America” trade that first surfaced after his broad Liberation Day tariffs last April.
Markets reacted sharply on Monday as concerns grew that trade tensions could flare up again. European stocks fell more than 1%, while U.S. equity futures posted similar declines, pointing to weakness after the public holiday. The dollar also weakened, signalling that investors were wary of Trump’s warning to raise tariffs on goods from several European countries unless the United States is allowed to purchase Greenland. The plan would begin with a 10% tariff from February 1 and rise to 25% by June 1.
The euro rebounded from its lowest level since late November, alongside gains in sterling and Scandinavian currencies. The Swiss franc, typically seen as a safe haven, was on track for its biggest one-day rise against the dollar in a month.
“There are likely many investors who are shocked by what unfolded over the weekend and are reconsidering how their assets are positioned,” said Francesca Fornasari, head of currency solutions at Insight Investment. She noted that while the dollar could weaken further, it continues to draw support from the strength of the U.S. economy and equity markets.
So far, however, market moves have been relatively restrained compared with last April’s near 2% daily drop in the dollar following the Liberation Day tariffs. Some analysts said this suggests investors expect Trump to ultimately dial back the rhetoric, as he has done before.
Uncertainty is also heightened by a pending U.S. Supreme Court ruling on the legality of Trump’s tariffs and questions over how European governments might respond.
The European Union could retaliate with tariffs of its own or potentially deploy its largely untested “anti-coercion instrument,” which could restrict U.S. access to public contracts, investment opportunities, banking activity, or services trade.
“For now, it looks more like noise than a clear signal,” said Leonard Kwan, a fixed-income portfolio manager at T. Rowe Price.
Could European investors pull back from U.S. assets?
Analysts note that while the depth and liquidity of U.S. markets — with the Treasury market alone valued at about $30 trillion — make it difficult for global investors to diversify away, the U.S. remains exposed to the risk of foreign capital outflows.
European investors are the largest foreign holders of U.S. assets, owning about $8 trillion in equities and bonds, nearly double the holdings of the rest of the world combined, according to Deutsche Bank.
“In a scenario where the geopolitical and economic stability of the Western alliance is fundamentally challenged, it is unclear why Europeans would remain as willing to maintain these positions,” wrote George Saravelos, Deutsche Bank’s global head of FX research.
The key question is whether European investors would actually sell, and what might trigger such a move. ING said the EU has limited ability to compel private investors to exit dollar assets and could only encourage greater investment in euro-denominated assets instead.
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