During discussions on January 18, the EU gave President Trump an off-ramp by not designating any retaliation for his tariff threats. Instead, EU leaders will decide on countermeasures after their Wednesday, January 21 talk with Trump at Davos. It’s clear the EU is dead set against any sale of Greenland to the United States. The ball is now in Trump’s court even though the damage has already been done to the trust that cemented transatlantic ties for the past 60 years. This trust cannot be fully restored whatever the outcome. It is astonishing, if not unprecedented, for a hegemon to destroy the foundation — namely, its alliances — on which much of its power has rested. For the Western liberal order, it is perhaps the final straw.
Two Scenarios
Trump has two options. Neither will be able to fully reestablish the status quo ante, but the moderate one could allow for some rebuilding of transatlantic ties if he refrains from other irritants.
- Escalation would mean annexing Greenland by Executive Order and sending U.S. troops to oust European forces. Europeans would likely respond with the $108 billion tariffs they envisaged levying after Trump’s April 2, 2025 announcement of stiff “Liberation Day” tariffs. (The EU dropped them in their later negotiation.) There is a strong possibility that the EU will move towards the “anti-coercion instrument (ACI),” sometimes referred to as the “bazooka” or nuclear option, which would take six months to implement. The ACI could limit U.S. corporations’ access to and their operations in the single market that might be very costly for U.S. tech firms. While the EU exports more than it imports from the U.S., the U.S. has a services surplus with the EU. U.S. tariffs that Trump announced starting at 10% and rising to 25% unless the EU agrees to a U.S. seizure of Greenland would be costly. Oxford Economics estimates that the U.S. and EU would each see a 1% loss in GDP if they levied 25% tariffs against each other. In Europe, Germany would be by far the most exposed; its car industry could suffer while France’s high-end luxury goods may take a hit. Then, the risk would be tit-for-tat spiraling towards even higher tariffs. Additionally, Trump has other ways to injure Europe. For example, ending all U.S. military or diplomatic support for Ukraine would encourage Russia to ramp up its aggression, resulting in greater losses for Ukraine and a weakened hand for Kyiv and Brussels in any ceasefire or peace talks. To punish the Europeans, Trump may also withdraw some U.S. forces from Europe and drop U.S. sanctions against Russia so that he could engage in business deals with Putin.
- De-escalation is the other possibility following the Davos talks. Trump could drop or postpone tariffs. In return, the EU could decide to move ahead with passing the US-EU trade agreement that is currently frozen in the EU Parliament following Trump’s threatened tariffs. A NATO working group could be set up to study how to secure Greenland against Russian and Chinese incursions. Such a truce may be short-lived, and in time, Trump could re-assert U.S. claims to Greenland. It is hard to overstate Trump’s disdain for most European governments. His recently published National Security Strategy (NSS) called for regime change to divert the old continent from “civilizational erasure.” As with the Escalation scenario, he could give up on peacemaking for Ukraine (which may happen regardless) and also reduce support for NATO. If and when he believes Venezuela is fully under his control, Trump could start to militarily pressure Greenland, conducting training exercises off its coast. This more incremental approach could be harder for the EU to handle. A number of EU members don’t want to antagonize Trump and may prefer the EU to avoid stiff measures against this sort of behavior.
Europe’s Medium-Term Options
Beginning with Trump 1.0, the EU has been expanding its trade network to decrease its dependence on transatlantic trade. The EU has been forging new deals (Indonesia, Mercosur, UAE, India, and ASEAN) and deepening existing ones (Mexico, UK). In November 2025, the EU and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), representing twelve Asian/Pacific countries, discussed coordinating trade policies for the first time. Together, the EU and the CPTPP would account for more than 30% of global trade — twice as much as the U.S. — but all this takes time.
The EU has far more leverage on the financial side. Europeans have a higher saving rate, and much of the savings go to Wall Street. As of December 2024, European investors held $14.5 trillion in U.S. financial assets, including $8.93 trillion in corporate stocks, $2.93 trillion in Treasury and agency securities, and $2.64 trillion in corporate and other bonds. In contrast, U.S. investors held $5.39 trillion in European assets, resulting in a net European investment of $9.12 trillion in the U.S. Incoming foreign investment is key to U.S. financial market liquidity, and any disruption that dissuades European and other investors, as happened last April 2025 when Trump announced high tariffs, could weaken the dollar and dramatically tank U.S. stocks and bonds. After Trump’s April 2 “Liberation Day” announcement, the yield on U.S. Treasuries rose rapidly, and Trump was forced to backtrack, suspending the high tariffs while talks started with Europe and others.
Theoretically, the EU could impose capital controls under the nuclear option, cutting back on flows of European investment to the U.S., but such a move would hurt the euro and undermine the EU’s ability to attract investments from others. In his 2024 report, former Italian Prime Minister and EU commissioner Mario Draghi highlighted the existing lack of inward investment as a key factor in Europe’s economic decline. He estimated that the EU needs 800 billion euros annually for building up its tech sector and upgrading its infrastructure to keep pace with the U.S. and China. To find the 800 billion euros, he recommended a new common debt to fund Europe’s industrial and defense needs and more unified capital markets that would mean European savings are invested at home. Without such reforms, Europe would be “gently declining.”
Unfortunately, little progress has been made in the last two years since the Draghi report was published. The Commission inaugurated SAFE, a €150 billion loan scheme for member states to jointly finance defense acquisitions, but a far larger pot for investments in infrastructure and high tech have been blocked by the fiscally conservative members such as Germany. The U.S. annexation of Greenland could be the trigger for establishing a much larger common investment fund. Traditionally, Germany and the other fiscally conservative members have only moved when there has been a crisis, such as the Russian invasion of Ukraine and COVID.
Will There Be a Transatlantic Revival Post-Trump?
If Trump backs down, many Europeans are likely to hope that the Greenland crisis will wither away over the next three years and disappear forever, particularly if there is a Democratic presidential successor. But, Greenland has been a recurring obsession from Trump’s first term, and he has repeatedly characterized it as a “necessity” and vital for U.S. security. Only if the upcoming midterms this November deprive the Republican party of its majority in Congress will there be any political impediments to Trump reviving his claim. Currently, there is some grumbling from Republican senators and representatives in Congress, but this opposition is coming from the same handful who often object to Trump initiatives.
Just 17% of Americans approve of Trump’s efforts to acquire Greenland, and “substantial majorities of Democrats and Republicans oppose using military force to annex the island,” according to a Reuters/Ipsos poll. Any Democratic successor would likely try to renew ties with Europe, but giving Greenland back may be tricky, as with time and growing Sino-US tensions, many Americans may see Greenland as crucial to U.S. security. Trump isn’t the first President who wanted the territory. There is also no guarantee a Democrat will win in 2028. The party’s standing remains at a low ebb even as Trump’s popularity has decreased. Where Trump is vulnerable is if the EU-US tit-for-tat economic retaliation worsens “affordability” for middle-class Americans, but European publics are likely to also suffer in this scenario.
NATO and Transatlantic Ties
In the aftermath of the Cold War, Washington policymakers insisted on continued U.S. leadership in NATO and keeping the EU out of defense issues. As Americans started feeling overextended, the stress on burden sharing grew. Europeans have gone from promising to spend 2% on defense to vowing 5% by 2035. Many Washington policymakers still want the U.S. to lead NATO, but the focus has shifted to China where NATO is less relevant. As Trump talks about there being “numerous definitions” of Article V, as he did before last year’s NATO summit at The Hague, the Europeans are no longer convinced that the U.S. is committed to their defense.
There is a growing European backlash against the U.S. in other areas, such as against American tech companies for their perceived lack of regard for user safety, data protection, and fair competition. The Trump Administration has recently heightened tensions with its decision to bar from U.S. entry leaders of European NGOs that focus on combating digital hate, and a former EU commissioner who has clashed with tech billionaire Elon Musk. The EU has belatedly started to invest heavily in tech startups, such as Mistral AI, and could do much more if there is agreement on Draghi’s reforms. In some ways, the U.S. and EU are both trying to duplicate China’s state capitalism, but this may prove to be a source of additional transatlantic frictions as Europe asserts itself against U.S. dominance in tech and other sectors. However the Greenland crisis is resolved, Europeans are likely to see strategic autonomy as imperative, not just for defense where it is moving away from non-EU defense industry suppliers, but across the board.
All the King’s Men Could Not Put Humpty Back Together
Greenland is perhaps an unlikely cause of the end of the Western liberal order, but what appears as an isolated event can have outsized repercussions. The 1917 assassination of a Hapsburg Archduke led to 15 to 22 million military and civilian deaths and the downfall of four empires. The strains in Western liberal order have been apparent for some time. One prominent example is the George W. Bush Administration’s undermining of public trust in government institutions by waging two unwinnable wars in Iraq and Afghanistan. Moreover, globalization that was supposed to help spread democracy and buttress Western leadership aided China’s unprecedented rapid rise. Middle classes in developing countries benefited while Western middle classes saw stagnant incomes. As Trump’s NSS proclaimed, U.S. primacy is no longer feasible.
While there is a growing consensus that the liberal order is coming to an end, there is no agreement on what comes next. From his NSS, Trump appears to favor “spheres of influence,” but Trump’s critics fear that would mean China gets Taiwan, leaving little doubt as to who wins the AI race. While global trade patterns are changing, they don’t necessarily track with the emerging power spheres. Multipolarity is also problematic unless the growing diversity of powers can come together to ensure global challenges like climate change can be effectively handled. Currently, the U.S. is opting out while the others have been unable to forge a consensus on how to deal with global challenges. Chances are there will be more “earthquakes” along the widening faultlines. Hopefully, the new order won’t have to come as the result of a major state-on-state conflict of the type which has historically brought about a new hegemon.
After the Fall: Amid the Greenland Crisis, Putting the Liberal Order Together Again
By Mathew Burrows
Grand Strategy
During discussions on January 18, the EU gave President Trump an off-ramp by not designating any retaliation for his tariff threats. Instead, EU leaders will decide on countermeasures after their Wednesday, January 21 talk with Trump at Davos. It’s clear the EU is dead set against any sale of Greenland to the United States. The ball is now in Trump’s court even though the damage has already been done to the trust that cemented transatlantic ties for the past 60 years. This trust cannot be fully restored whatever the outcome. It is astonishing, if not unprecedented, for a hegemon to destroy the foundation — namely, its alliances — on which much of its power has rested. For the Western liberal order, it is perhaps the final straw.
Two Scenarios
Trump has two options. Neither will be able to fully reestablish the status quo ante, but the moderate one could allow for some rebuilding of transatlantic ties if he refrains from other irritants.
Europe’s Medium-Term Options
Beginning with Trump 1.0, the EU has been expanding its trade network to decrease its dependence on transatlantic trade. The EU has been forging new deals (Indonesia, Mercosur, UAE, India, and ASEAN) and deepening existing ones (Mexico, UK). In November 2025, the EU and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), representing twelve Asian/Pacific countries, discussed coordinating trade policies for the first time. Together, the EU and the CPTPP would account for more than 30% of global trade — twice as much as the U.S. — but all this takes time.
The EU has far more leverage on the financial side. Europeans have a higher saving rate, and much of the savings go to Wall Street. As of December 2024, European investors held $14.5 trillion in U.S. financial assets, including $8.93 trillion in corporate stocks, $2.93 trillion in Treasury and agency securities, and $2.64 trillion in corporate and other bonds. In contrast, U.S. investors held $5.39 trillion in European assets, resulting in a net European investment of $9.12 trillion in the U.S. Incoming foreign investment is key to U.S. financial market liquidity, and any disruption that dissuades European and other investors, as happened last April 2025 when Trump announced high tariffs, could weaken the dollar and dramatically tank U.S. stocks and bonds. After Trump’s April 2 “Liberation Day” announcement, the yield on U.S. Treasuries rose rapidly, and Trump was forced to backtrack, suspending the high tariffs while talks started with Europe and others.
Theoretically, the EU could impose capital controls under the nuclear option, cutting back on flows of European investment to the U.S., but such a move would hurt the euro and undermine the EU’s ability to attract investments from others. In his 2024 report, former Italian Prime Minister and EU commissioner Mario Draghi highlighted the existing lack of inward investment as a key factor in Europe’s economic decline. He estimated that the EU needs 800 billion euros annually for building up its tech sector and upgrading its infrastructure to keep pace with the U.S. and China. To find the 800 billion euros, he recommended a new common debt to fund Europe’s industrial and defense needs and more unified capital markets that would mean European savings are invested at home. Without such reforms, Europe would be “gently declining.”
Unfortunately, little progress has been made in the last two years since the Draghi report was published. The Commission inaugurated SAFE, a €150 billion loan scheme for member states to jointly finance defense acquisitions, but a far larger pot for investments in infrastructure and high tech have been blocked by the fiscally conservative members such as Germany. The U.S. annexation of Greenland could be the trigger for establishing a much larger common investment fund. Traditionally, Germany and the other fiscally conservative members have only moved when there has been a crisis, such as the Russian invasion of Ukraine and COVID.
Will There Be a Transatlantic Revival Post-Trump?
If Trump backs down, many Europeans are likely to hope that the Greenland crisis will wither away over the next three years and disappear forever, particularly if there is a Democratic presidential successor. But, Greenland has been a recurring obsession from Trump’s first term, and he has repeatedly characterized it as a “necessity” and vital for U.S. security. Only if the upcoming midterms this November deprive the Republican party of its majority in Congress will there be any political impediments to Trump reviving his claim. Currently, there is some grumbling from Republican senators and representatives in Congress, but this opposition is coming from the same handful who often object to Trump initiatives.
Just 17% of Americans approve of Trump’s efforts to acquire Greenland, and “substantial majorities of Democrats and Republicans oppose using military force to annex the island,” according to a Reuters/Ipsos poll. Any Democratic successor would likely try to renew ties with Europe, but giving Greenland back may be tricky, as with time and growing Sino-US tensions, many Americans may see Greenland as crucial to U.S. security. Trump isn’t the first President who wanted the territory. There is also no guarantee a Democrat will win in 2028. The party’s standing remains at a low ebb even as Trump’s popularity has decreased. Where Trump is vulnerable is if the EU-US tit-for-tat economic retaliation worsens “affordability” for middle-class Americans, but European publics are likely to also suffer in this scenario.
NATO and Transatlantic Ties
In the aftermath of the Cold War, Washington policymakers insisted on continued U.S. leadership in NATO and keeping the EU out of defense issues. As Americans started feeling overextended, the stress on burden sharing grew. Europeans have gone from promising to spend 2% on defense to vowing 5% by 2035. Many Washington policymakers still want the U.S. to lead NATO, but the focus has shifted to China where NATO is less relevant. As Trump talks about there being “numerous definitions” of Article V, as he did before last year’s NATO summit at The Hague, the Europeans are no longer convinced that the U.S. is committed to their defense.
There is a growing European backlash against the U.S. in other areas, such as against American tech companies for their perceived lack of regard for user safety, data protection, and fair competition. The Trump Administration has recently heightened tensions with its decision to bar from U.S. entry leaders of European NGOs that focus on combating digital hate, and a former EU commissioner who has clashed with tech billionaire Elon Musk. The EU has belatedly started to invest heavily in tech startups, such as Mistral AI, and could do much more if there is agreement on Draghi’s reforms. In some ways, the U.S. and EU are both trying to duplicate China’s state capitalism, but this may prove to be a source of additional transatlantic frictions as Europe asserts itself against U.S. dominance in tech and other sectors. However the Greenland crisis is resolved, Europeans are likely to see strategic autonomy as imperative, not just for defense where it is moving away from non-EU defense industry suppliers, but across the board.
All the King’s Men Could Not Put Humpty Back Together
Greenland is perhaps an unlikely cause of the end of the Western liberal order, but what appears as an isolated event can have outsized repercussions. The 1917 assassination of a Hapsburg Archduke led to 15 to 22 million military and civilian deaths and the downfall of four empires. The strains in Western liberal order have been apparent for some time. One prominent example is the George W. Bush Administration’s undermining of public trust in government institutions by waging two unwinnable wars in Iraq and Afghanistan. Moreover, globalization that was supposed to help spread democracy and buttress Western leadership aided China’s unprecedented rapid rise. Middle classes in developing countries benefited while Western middle classes saw stagnant incomes. As Trump’s NSS proclaimed, U.S. primacy is no longer feasible.
While there is a growing consensus that the liberal order is coming to an end, there is no agreement on what comes next. From his NSS, Trump appears to favor “spheres of influence,” but Trump’s critics fear that would mean China gets Taiwan, leaving little doubt as to who wins the AI race. While global trade patterns are changing, they don’t necessarily track with the emerging power spheres. Multipolarity is also problematic unless the growing diversity of powers can come together to ensure global challenges like climate change can be effectively handled. Currently, the U.S. is opting out while the others have been unable to forge a consensus on how to deal with global challenges. Chances are there will be more “earthquakes” along the widening faultlines. Hopefully, the new order won’t have to come as the result of a major state-on-state conflict of the type which has historically brought about a new hegemon.
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