Trump's Greenland tariff threat raises geopolitical risks in Europe: Fitch

International credit rating agency Fitch Ratings has said that a US threat to impose tariffs on European allies over their opposition to Washington’s push to acquire Greenland has increased geopolitical risks in Europe.

"The threat of Greenland-related US tariffs on European allies and European retaliatory measures will be subject to intense discussions, and implementation remains highly uncertain. But it signifies a serious upsurge in transatlantic tensions, increasing pressure in Europe to raise defence spending, posing risks to trade and growth, and weakening deterrence against future Russian aggression," Fitch said in a statement on Monday.

The agency said the initial response from EU officials showed European leaders were seeking to avoid an escalating cycle of retaliation or further weakening of the US commitment to European defence, although some leaders said the Trump administration had crossed a line.

US President Donald Trump said on Saturday that Washington would impose 10 percent tariffs on goods from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands and Finland from February 1, rising to 25 percent in June, unless a deal is struck for what he called the “complete and total purchase of Greenland” by the US.

European leaders rejected the tariff threat and reiterated solidarity with Denmark.

On Sunday, those eight European countries issued a joint statement denouncing the US threat and reaffirming their commitment to Arctic security, as well as national sovereignty.

The agency said the official EU response showed European leaders were seeking to avoid an escalating cycle of retaliation or further weakening of the US commitment to European defence, although some leaders said the Trump administration had crossed a line.

Defence spending is likely to grow

Fitch said it remains unclear whether these tariffs would actually be implemented, adding that such measures would likely raise prices for US consumers.

It said the economic impact of a 10 percent tariff would vary depending on countries’ trade exposure and could reduce European gross domestic product by about 0.5 percent by the end of 2027 compared with Fitch’s baseline scenario. A 25 percent tariff would roughly double that impact, it added.

Fitch said that even if US tariffs are implemented, the EU’s response is expected to remain “fairly muted” due to security concerns.

It said the EU is discussing the activation of potential measures targeting about €95 billion ($110.6 billion) of US imports, prepared in May 2025, but added that a stronger European response remains possible.

Beyond trade and growth effects, Fitch said the main risk to countries’ credit ratings from rising transatlantic tensions is that NATO’s sustainability and the credibility of collective defence commitments could weaken, increasing the risk of renewed tensions with Russia.

Fitch said Greenland’s potential loss to the US would have a limited direct impact on Denmark’s credit profile, given its strong public finances and general government debt-to-GDP ratio below 30 percent, but Denmark could face secondary political and geostrategic effects.

It added that tensions with the US were likely to increase pressure for higher defence spending across Europe.

"Several eastern and northern European countries and Germany are already increasing defence spending more rapidly, and the latest developments could accelerate this process. For European countries not facing as direct geopolitical threats, defence spending may remain on a slower upward trend," it said.