President Trump’s threat to raise tariffs on European countries over Greenland highlights ongoing uncertainty over US trade policy, reigniting concerns about a broader conflict between the US and the European Union. While the dollar has held up so far, the large US current account deficit leaves the currency vulnerable to significant weakness if capital flows slow amid escalating trade tensions, noted Thu Lan Nguyen, head of FX and commodities research at Commerzbank.
The European Union is facing renewed trade tensions with the United States
“US President Trump has now threatened to raise tariffs on European countries that have sent soldiers to Greenland if an agreement is not reached by June on the US purchase of Greenland. Not only does this threaten to reignite the trade dispute between the US and the EU, it also shows once again that there is simply no certainty about tariffs under this US administration. In other words: everyone who thought the tariff issue could be shelved after all the ‘deals’ have been done has been proven wrong.” Commercial.
“The only ray of hope for the US dollar is that Trump continues to resort to tariffs as his ‘weapon of choice’ and that their economic consequences have been limited so far. This is certainly due to the fact that the actual increase in tariffs has been lower than expected. However, the lucky coincidence of an investment boom in artificial intelligence has also played a role. This experience may benefit the dollar. The market may even be betting that the European economy will suffer more from an escalation of the trade conflict, which will have a negative impact on the European economy.” euro.”
“We should not forget that the United States has a huge current account deficit that must be financed by capital imports. If investors see the dollar’s status as the world’s reserve currency at risk, and fear a significant depreciation of the US currency as a result, these capital imports may dry up. In the worst case, there may be a capital outflow. The US economy will be forced to correct its current account balance, which will be accompanied by further significant weakness in the dollar.”
