USA demands control over Greenland: What are the possible consequences?

Since the beginning of the year alone, the unorthodox measures taken by the US government under President Donald Trump have been so numerous that they could make your head spin. Just a week ago, the main topic was the subpoena issued by the US Department of Justice to the US central bank to examine the statements made by Federal Reserve Chairman Powell about the costs of the Federal Reserve’s renovation project before the Senate. This calls into question the independence of what is by far the most important central bank for the global financial system. This is a key issue for the financial markets.

Since last weekend, however, a new topic has dominated the news: the demand for US control over Greenland.

What happened?

The US President has repeatedly emphasized that the USA must possess the Arctic island because the national security of the USA is at risk. The argument is objectively difficult to understand because the expansion of the military presence on Greenland by the USA or NATO would also work without possession. The UK, Norway and the six EU countries Germany, France, the Netherlands, Denmark, Sweden and Finland have underlined this by sending military personnel to Greenland.

The US President has responded with a threat to increase tariffs on goods imports from these countries by an additional 10 percent if they do not agree to the purchase from Greenland. From June 1, the tariffs are to be raised to 25 percent if no agreement has been given by then.

What does that mean?

In principle, there are two scenarios. The starting point is that the US government uses the means of intimidation. The two scenarios differ in terms of how the European Union reacts.

Can Europe take a coordinated approach?

In any case, the issue of Greenland is likely to be a key topic at this week’s World Economic Forum. There will be numerous diplomatic talks with the US President around the meeting in Davos. If no agreement is reached here, the EU special summit next Thursday would be the first test for the EU. After all, “only” six EU countries are affected by the threatened tariffs. If the EU succeeds in jointly announcing further steps, this would be a signal of strength.

As a soft measure, the tariffs already negotiated between the USA and the EU may not be adopted by the EU Parliament for the time being. It is also possible that the package prepared last year to tax goods imports from the USA will be activated. This would affect imports to the tune of 93 billion euros.

The activation of the Anti-Coercion Instrument (ACI) would be an escalation level above this. This instrument is intended to protect EU member states from economic coercion by third countries. The range of measures intended to act as a deterrent is diverse: US market access could be restricted (e.g. through higher tariffs and import restrictions), companies’ access to the services market or to investment opportunities could be limited, access to public tenders could be excluded or other administrative requirements could be imposed.

If the threat picture is credible, the US president could relent in a favorable scenario – as in the case of China last year. The fact that even politicians in his own party reject the unorthodox approach also speaks in favor of the US president giving in. The counter-pressure could become too strong.

What impact will the Greenland dispute have?

The EU states may also choose a more pragmatic approach due to disagreement and try to appease the US, which is likely to play into the hands of the US in the dispute over Greenland. If the dispute escalates further and a trade war between the US and the EU threatens, this would be negative for the markets.

Regardless of what happens next, some of the effects of the US government’s geopolitical course are already becoming clear:

• The transatlantic alliance and the relationship between the EU and the US is suffering.
• The NATO defense alliance is also suffering, as the US is pressuring Denmark to give up the island of Greenland. Both countries are NATO members.
• The rules-based, Western-style world order is visibly eroding. Territorial integrity is being respected less and less by world powers (USA, Russia).
• The incentive for all countries to invest in defense continues to increase.
• Because not all EU countries are subject to tariffs, the unity of the EU is also burdened.

 

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