USD: Trump threatens tariffs over Greenland deal – Commerzbank
|President Trump’s threat to raise tariffs on European countries over Greenland underscores the persistent uncertainty around US trade policy, reigniting concerns of a broader US–EU dispute. While the dollar has held up so far, a large US current account deficit leaves the currency vulnerable to significant weakness if capital inflows slow amid escalating trade tensions, Commerzbank's Head of FX and Commodity Research Thu Lan Nguyen notes.
EU faces renewed trade tensions with US
"US President Trump has now threatened to raise tariffs on European countries that sent soldiers to Greenland if no agreement has been reached by June on the purchase of Greenland by the US. This not only threatens to reignite the trade dispute between the US and the EU, but also shows once again that there is simply no certainty regarding tariffs under this US administration. In other words: Anyone who thought that the tariff issue could be shelved after the conclusion of all the trade 'deals' is being proven wrong."
"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 so far been limited. This is certainly due to the fact that the effective tariff increase was lower than expected. However, the fortunate coincidence of the AI investment boom also played a role. This experience could benefit the dollar. It may even be that the market is betting that the European economy will suffer more from an escalation of the trade conflict, which would be negative for the euro."
"We must not forget that the US has a massive current account deficit that has to be financed by capital imports. If investors see the dollar's status as the world's reserve currency at risk and fear a significant devaluation of the US currency as a result, these capital imports could dry up. In the worst case, there could even be an outflow of capital. The US economy would be forced to correct its current account balance, which would be accompanied by further significant dollar weakness."
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