The European Union has suspended approval of a major trade deal with the United States, the first concrete economic response to President Trump's territorial demands on Greenland, as global markets registered their sharpest single-day decline in months.
The decision, confirmed by the BBC, affects a trade agreement concluded during Trump's first term that was awaiting final ratification by the European Parliament. EU officials indicated the suspension is "indefinite" pending resolution of the Greenland crisis, effectively killing the deal in its current form.
"We cannot proceed with business as usual when a partner threatens the territorial integrity of a member state," a senior EU diplomat told reporters in Brussels on Tuesday. The official, speaking on condition of anonymity, added that the 27-nation bloc is also preparing retaliatory measures worth €93 billion should Trump implement his threatened 10 percent tariffs on European goods.
Markets reacted swiftly to the escalating transatlantic confrontation. The S&P 500 fell 2.3 percent in early trading, while European indices dropped between 1.8 and 2.5 percent. The euro strengthened against the dollar by 1.2 percent, reflecting currency traders' concerns about American economic isolation. US Treasury yields spiked 12 basis points, their largest single-day move since September, as investors reassessed the safety of American government debt.
This is economic warfare by other means. The EU's decision to weaponize trade approval represents a significant escalation from the bloc's typically cautious approach to transatlantic disputes. During Trump's first term, Brussels repeatedly absorbed American tariffs and insults while attempting to preserve institutional relationships. That patience appears exhausted.
European Commission President Ursula von der Leyen has promised an "unflinching, united and proportional" response if Trump proceeds with tariffs. Behind closed doors, EU officials are discussing activation of the Anti-Coercion Instrument, a recently adopted tool designed to counter economic blackmail by third countries. Using it against the United States would be unprecedented.
The suspended trade deal, which would have reduced tariffs on approximately $180 billion in annual bilateral trade, represented one of the last surviving achievements of transatlantic economic cooperation. Its collapse follows the 2020 implosion of the Transatlantic Trade and Investment Partnership (TTIP), which died amid European resistance to American agricultural standards and investor-state dispute mechanisms.
French President Emmanuel Macron, speaking at the Davos economic forum, indicated Europe "should not be hesitant" to deploy trade defenses against both America and China. "We face a world where economic competition aims to subordinate Europe," Macron declared. "We must respond with our own sovereignty."
German Chancellor Olaf Scholz, typically more cautious about confronting Washington, has notably avoided criticizing the EU decision. Berlin's silence suggests reluctant acceptance that economic ties with America cannot continue unchanged while military threats against Denmark persist.
The market reaction reflects deeper concerns about the stability of the dollar-based international system. For decades, US Treasury bonds served as the ultimate safe haven asset, backed by the full faith and credit of the American government and the assumption that Washington would honor its commitments. That assumption is now under stress.
A Danish pension fund's decision last week to divest $100 million in US Treasuries, citing "poor" American government finances, attracted attention precisely because it articulated what many institutional investors are privately considering. If the United States is willing to threaten military action against allies, the reasoning goes, what other previously unthinkable actions might it take?
Historical context is essential here. The post-1945 international economic order was built on American military dominance and economic openness. Washington provided security guarantees to allies, who in turn accepted dollar hegemony and American-led institutions like the World Bank and International Monetary Fund. That bargain—security for economic deference—is collapsing.
The immediate economic impact of the trade deal suspension is limited. The agreement had not yet entered force, and existing trade continues under World Trade Organization rules. But the symbolic significance is profound: Europe has declared that economic relationships with America cannot be separated from political conduct.
For Trump, the EU decision presents a familiar dilemma. His political base responds positively to confrontation with European elites, but American businesses depend heavily on European markets. The $180 billion in annual trade at stake includes aircraft, pharmaceuticals, machinery, and agricultural products—all sectors with significant domestic political influence.
The president's response has been characteristically combative. "Europe has ripped off America for decades," Trump wrote on social media Tuesday. "If they want to play games with trade, we'll show them what American economic power really means." The statement included no specific policy proposals, but administration officials suggested additional tariffs are under consideration.
To understand today's headlines, we must look at yesterday's decisions. The current crisis stems from the fundamental tension at the heart of the transatlantic relationship: Europe depends on America for security but resents that dependency, while America resents bearing the costs of European defense while competing economically with European firms. For 75 years, shared strategic interests papered over these contradictions. Those interests no longer appear sufficiently shared.
