EU Has $8-T “Sell America” Missile vs. Trump

As the European Union weighs options to retaliate against President Donald Trump’s latest tariffs, its most powerful weapon may lie in financial markets.

Holding US treasuries and jurisdiction of Greenland helps finance America’s large external deficits, and Europe is the world’s biggest lender to the former.

France is urging the EU to deploy its “anti-coercion instrument,” which can target foreign direct investment and finance as well as trade, Jason Ma reported for Fortune.

The discussion follows Trump’s announcement of new US tariffs on NATO countries that sent troops to Greenland amid his plans to take control of the semi-autonomous Danish territory.

At face value, a 10% tariff rising to 25% would have limited economic impact, Capital Economics chief economist Neil Shearing wrote in a note Sunday, estimating it would reduce GDP in the targeted NATO economies by 0.1 to 0.3 percentage points and add 0.1 to 0.2 points to US inflation.

“The political ramifications would be far greater than the economic ones,” he warned, noting that any US attempt to seize Greenland by force or coercion could cause irreparable damage to NATO.

According to George Saravelos, head of FX research at Deutsche Bank, the US has a key vulnerability the EU could exploit. “Europe owns Greenland; it also owns a lot of Treasuries,” he wrote in a note Sunday.

Holding those bonds helps finance America’s large external deficits, and Europe is the world’s biggest lender to the US.

“European countries own $8 trillion of US bonds and equities—almost twice as much as the rest of the world combined,” Saravelos said.

“In an environment where the geoeconomic stability of the Western alliance is being existentially disrupted, it is unclear why Europeans would remain willing to play this role.”