Asian markets faced further volatility on Monday after President Donald Trump’s threat to impose tariffs on eight European nations until the US is allowed to buy Greenland.
Japan’s Nikkei share average slid for a third day as geopolitical tension over Greenland sparked a safe-haven rally in the yen, while economic data surprised on the downside. The benchmark Nikkei 225 Index fell 0.6% to close at 53,583.57, while the broader Topix slid 0.1% to 3,656.40.
The Hang Seng Index in Hong Kong was also down over 1% when it closed, while Australian shares were also lower, with the S&P/ASX 200 slipping 0.3% to close at 8,874.5 points – its steepest one-day decline in nearly two weeks. The benchmark gained 2.1% last week, which was its best week since late November.
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On Saturday, Trump threatened eight European nations with additional tariffs until the United States is allowed to buy Greenland.
Trump said he would impose an additional 10% import tariff from February 1 on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland and Britain, which will rise to 25% on June 1 if no deal is reached.
Major European Union states decried the tariff threats over Greenland as blackmail on Sunday. France proposed responding with a range of previously untested economic countermeasures.
Doubts on US-EU trade deal; gold jumps
European Union ambassadors are preparing retaliatory measures should the duties go ahead, EU diplomats said. The US-EU trade deal also looks in doubt, unless a diplomatic solution can be found.
Analysts said Trump’s threat injected fresh trade uncertainty, causing stocks to slide and broadly weakening the dollar.
However, gold and silver prices climbed to fresh peaks on Monday, as investors poured into safe-haven assets. Spot gold jumped 1.6% to $4,666.11 as of 0551 GMT, after scaling an all-time high of $4,689.39.
Gold miners’ stocks in Australia rose 2.9% to a record high. The yellow metal is up nearly 8% in January, after gaining 64% last year.
Meanwhile, the euro firmed 0.26% to $1.1628, after it initially dropped to its lowest since November as investors sold off the dollar broadly, lifting other major rival currencies.
“Hopes that the tariff situation has calmed down for this year have been dashed for now – and we find ourselves in the same situation as last spring,” Berenberg chief economist Holger Schmieding told Reuters.
Trump’s sweeping “Liberation Day” tariffs in April 2025 sent shockwaves through markets. Investors then largely looked past US trade threats in the second half of the year, viewing them as noise and responding with relief as Trump made deals with Britain, the EU and others.
While that lull might be over, market moves on Monday were perhaps dampened by the knowledge that investor sentiment had been more resilient than expected in 2025 and global economic growth stayed on track.
‘Dollar hit by political risk’
US markets are closed on Monday for Martin Luther King Jr Day, which means a delayed reaction on Wall Street. US stock futures were 0.7% lower in early Asian hours. The cash Treasury market was shut, but 10-year futures firmed 1 tick.
The implications for the dollar were less clear, although the greenback was broadly lower on Monday. It remains a safe haven, but could also feel the impact of Washington being at the centre of geopolitical ruptures, as it did last April.
The dollar weakness lifted the safe-haven yen and Swiss Franc. Bitcoin, a liquid proxy for risk, fell nearly 3% to $92,602.64.
“While you would argue that the tariffs threaten Europe, in fact, it’s actually the dollar that is bearing the brunt of it, because I think markets are pricing in increased political risk premia on the US dollar,” Khoon Goh, head of Asia research at ANZ, said.
Capital Economics said the countries most exposed to increased US tariffs were the UK and Germany, estimating that a 10% tariff could reduce gross domestic product in those economies by around 0.1%, while a 25% tariff could knock 0.2%–0.3% off of output.
European stocks have been near record highs. Germany’s DAX and London’s FTSE index are up more than 3% this month, outperforming the S&P 500, which is up 1.3%.
European defence shares will likely continue to benefit from geopolitical tensions. Defence stocks have jumped almost 15% this month, as the US seizure of Venezuela’s Nicolas Maduro fuelled concerns about Greenland.
Denmark’s closely managed crown will also likely be in focus. It has weakened, but rate differentials are a major factor and it remains close to the central rate at which it is pegged to the euro, and not far from six-year lows.
“The US-EU trade war is back on,” said Tina Fordham, geopolitical strategist and founder of Fordham Global Foresight.
Trump’s latest move came after top officials from the EU and South American bloc Mercosur signed a free-trade agreement on Saturday (Jan 17).
Trump seen hurting US assets
The dispute over Greenland is just one hot spot. Trump has also weighed intervening in unrest in Iran, while a threat to indict Federal Reserve Chair Jerome Powell has reignited concerns about the US central bank’s independence.
Given Trump’s recent Fed attacks, an escalation with Europe could pile pressure on the dollar if it adds to worries that US policy credibility is becoming critically impaired, Peel Hunt chief economist Kallum Pickering said.
“(This) could be amplified by a desire, especially among Europeans, to repatriate capital and shun US assets, which may also pose downside risks to lofty US tech valuations,” he added.
The World Economic Forum‘s annual risk perception survey, released before its annual meeting in Davos next week, which will be attended by Trump, identified economic confrontation between nations as the number one concern, replacing armed conflict.
A source close to French President Emmanuel Macron said he was pushing for activation of the “Anti-Coercion Instrument”, which could limit access to public tenders, investments or banking activity or restrict trade in services, in which the US has a surplus with the bloc, including digital services.
“With the US net international investment position at record negative extremes, the mutual inter-dependence of European-US financial markets has never been higher,” Deutsche Bank’s global head of FX research George Saravelos said in a note.
“It is a weaponization of capital rather than trade flows that would by far be the most disruptive to markets.”
Reuters with additional input and editing by Jim Pollard
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