ETFs Caught in the Crossfire Amid US-Greenland Trade Gambit

The global trade landscape has been thrust into a fresh chaos following President Trump’s latest ultimatum to impose a 10% tariff on eight European nations starting Feb. 1, 2026, with the possibility of an escalated tariff of 25% by June, unless a deal is reached for the U.S. purchase of Greenland. In a swift and firm retaliation, the European Union has prepared a "trade bazooka" — a €93 billion ($108 billion) retaliatory package targeting iconic American goods.

This high-stakes brinkmanship has placed major industrial sectors directly in the crossfire, subsequently destabilizing the exchange-traded funds (ETFs) that hold these embattled stocks.

Industries in the Line of Fire

The U.S. President’s proposed tariffs target “any and all goods” shipped from countries including Denmark, Germany, France, the UK, the Netherlands, Sweden, Norway, and Finland, immediately placing export-reliant sectors at risk.

Europe’s contemplated response to this, including the Anti-Coercion Instrument, with the European Parliament planning to suspend approval of the U.S. trade deal agreed in July last year (as cited in a BBC press release), further amplifies risk for multi-sector ETFs.

Key industries that are likely to bear the brunt of this transatlantic trade war include:

•    Autos and components: Germany’s automotive sector, described as vulnerable due to heavy U.S. demand, could face higher border taxes on both sides, pressuring margins and volumes for prominent carmakers like Volkswagen VWAGY as well as auto-parts makers like Continental AG CTTAY. On the other hand, if Europe suspends trade deals with America, major U.S. automakers with a strong presence in the European Union (EU), like Tesla TSLA and Ford F, will suffer. 

•    Aerospace & Defense: The EU has specifically proposed a 25% tariff on American aircraft, a move that directly threatens U.S. jet manufacturing giants like Boeing BA and Lockheed Martin LMT as well as jet engine makers like RTX Corp. RTX that possess a significant market share in the EU.  

•    Luxury Goods Sector: European luxury and capital goods exporters are highly exposed to the U.S. consumer and corporate cycle, making EU tariffs and U.S. counter moves a direct earnings headwind. For example, shares of French luxury goods conglomerate LVMH Moet Hennessy Louis Vuitton LVMUY tumbled around 6% this week, after Trump threatened a potential 200% "wine and champagne" tariff aimed at France, which can decimate LVMUY’s high-margin spirits divisions.

•    Tech and finance sectors: EU officials have floated restricting market access for major American technology firms and even banks. This puts mega U.S. tech giants, such as Microsoft MSFT, Amazon AMZN, and Alphabet GOOGL, along with major banks including Citigroup C, Bank of America BAC and Wells Fargo WFC, directly in the line of fire, given their dominant presence in the EU.

Why Investors Need a Fresh Portfolio Look

Considering the aforementioned discussion, for ETF investors, the current situation necessitates a cautious and fresh look at their ETF allocations.  While widespread divestment is not required at this moment, given that a diplomatic resolution at Davos remains possible, the shift from a "benign" trade environment to "economic coercion" might be a significant structural change.

The recent data also confirms a massive "risk-off" rotation. On that day alone, the S&P 500 fell 21%, while safe-haven assets, such as gold, hit record highs of $4,765 per ounce. The "Turnberry" trade deal of 2025 is effectively frozen, and the CBOE volatility index spiked to its highest level in two months. Investors may therefore consider adopting a more defensive posture until the Feb. 1 deadline passes.

As the deadline approaches, the following ETFs are likely to feel the brunt of this tariff war immediately:

MAX Auto Industry 3X Leveraged ETNs CARU

This fund, with a market cap worth $5.23 million, offers exposure to stocks of U.S.-listed companies that have operations relating to the automobile industry, including automobile manufacturing, parts and retail, and new and used car dealers. Its top three holdings include Carvana CVNA (11.64%), TSLA (11.64%) and F (11.58%). 

CARU has gained 2.7% over the past year but fell 6.1% on Jan. 20, 2026, following President Trump’s tariff announcement over the weekend and retaliatory trade measures announced by the EU. The fund charges 95 basis points (bps) as fees. 

iShares MSCI France ETF EWQ

This fund, with net assets worth $381.8 million, offers exposure to large and mid-sized French companies. Its top three holdings include LVMUY (8.03%), Airbus EADSY (6.81%) and Schneider Electric SBGSY (6.79%). 

EWQ has surged 19.6% over the past year but slipped 1.6% on Jan. 20, 2026. The fund charges 50 bps as fees. 

Invesco Aerospace & Defense ETF PPA

This fund, with market value worth $7.84 billion, offers exposure to companies involved in the development, manufacturing, operations and support of U.S. defense, homeland security and aerospace operations. Its top four holdings include BA (8.90%), RTX (8.47%), GE Aerospace GE (8.06%) and LMT (8.04%).

PPA has soared 44.8% over the past year but dropped 2.2% on Jan. 20, 2026. The fund charges 58 bps as fees. 

Roundhill Magnificent Seven ETF MAGS

This fund, with assets under management (AUM) worth $3.90 billion, offers exposure to the magnificent seven stocks. Its top five holdings include GOOGL (15.38%), AMZN (14.96%), Nvidia NVDA (14.19%), MSFT (14.02%) and TSLA (13.90%).

MAGS has surged 11.6% over the past year but tumbled 3% on Jan. 20, 2026. The fund charges 29 bps as fees. 

First Trust NASDAQ Bank ETF FTXO

This fund, with net assets worth $266.4 million, offers exposure to U.S. bank stocks. Its top four holdings include C (9.04%), WFC (7.96%), Truist Financial Corp. TFC (7.90%) and BAC (7.72%).

FTXO has gained 14.2% over the past year but slipped 1.5% on Jan. 20, 2026. The fund charges 60 bps as fees. 
 

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This article originally published on Zacks Investment Research (zacks.com).

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