Europe's economic outlook could face renewed pressure if President Donald Trump follows through on his latest tariff threats tied to Greenland, according to Goldman Sachs.
In a research note published late Sunday, Goldman Sachs economist Giovanni Pierdomenico assessed the potential fallout from Trump's announcement that the U.S. could impose sweeping tariffs on imports from eight European countries unless negotiations begin for what he described as the complete and total purchase of Greenland.
On Monday, Trump said NATO had warned Denmark for two decades that it "has to get the Russian threat away from Greenland," arguing that Copenhagen has failed to act and declaring, "Now it is time, and it will be done."
Tariffs Could Hit Exports And GDP
While Goldman Sachs indicated that implementation remains highly uncertain, he warned that even limited tariffs could weigh on growth across key European economies — with risks rising sharply if tensions escalate.
Trump said the U.S. would impose a 10% tariff starting February 1, 2026, on imports from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland, with plans to raise the tariff to 25% by June 1 if no deal is reached.
Assuming the initial 10% tariff is implemented, Pierdomenico estimates it would lower real GDP by roughly 0.1%–0.2% across the affected countries, primarily through weaker exports to the U.S.
Germany would likely see the largest impact, with exports subject to the tariff equivalent to as much as 3%–3.5% of GDP under a broad implementation.
Under a more targeted approach, the hit would still be meaningful. For the euro area as a whole, Goldman Sachs estimates the drag at around 0.1% of GDP, similar in magnitude to the expected impact on the U.K.
"The GDP hit could be larger should there be adverse confidence or financial market effects," Pierdomenico wrote, noting that the estimates assume no major spillovers beyond the direct trade channel.
Escalation Would Sharpen The Economic Pain, Yet Inflation Still In Check
The risks rise considerably if tariffs are lifted to 25%, as Trump has threatened.
In that scenario, Goldman Sachs estimates the GDP drag could increase to 0.25%–0.5%, adding to the roughly 0.4% real GDP drag already attributed to last year's tariff increases.
Such an outcome, Pierdomenico noted, would come at a time when European growth remains fragile, making economies more vulnerable to external shocks.
Despite concerns that new tariffs could reignite inflation, Goldman Sachs expects the inflationary impact to be very small, assuming no immediate retaliation.
Weaker demand from reduced exports would likely offset any rise in import prices. Under a simple Taylor-rule framework, Pierdomenico said the tariff shock would actually point toward modestly lower policy rates, all else equal — offering some cushion for domestic demand.
Market Reactions
While U.S. markets were closed for Martin Luther King Jr. Day on Monday, European equities sold off sharply as investors reacted to the latest escalation in tariff pressure from President Trump.
Pan-European benchmarks moved lower across the board, with the EURO STOXX 50 falling 1.4% and the broader STOXX Europe 600 down 1.2%.
The selloff was most pronounced in large, globally exposed names. Among the hardest-hit stocks were LVMH (OTC:LVMUY), ASML Holding N.V. (NASDAQ:ASML), Hermès International (OTC:HESAY), and Novo Nordisk A/S (NYSE:NVO), which declined 4.78%, 3.74%, 3.33%, and 2.96%, respectively.
