European stocks plunge as Trump's Greenland tariff threat sparks trade war fears

European stock markets opened Monday to a sharp selloff, with investors fleeing export-heavy companies in response to President Trump's weekend threat of sweeping tariffs on eight allied nations. The stated goal was audacious: force Denmark to sell Greenland, an autonomous territory it has no intention of parting with. The tariff schedule was explicit—10% on all goods from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland beginning February 1, escalating to 25% by June if negotiations stalled.

The Stoxx Europe 600 index fell 1.2%, a broad retreat that reflected genuine fear among traders. Germany's DAX dropped 1.3% to its lowest point in nearly two weeks. France's CAC 40 fell harder, down 1.8%, dragged lower by luxury stocks that had suddenly become vulnerable. London's FTSE 100 held up better at a 0.4% decline, cushioned by its heavier weighting toward defensive sectors less exposed to American tariffs. The real damage concentrated in the companies most dependent on US sales: LVMH, BMW, and Volkswagen all slid as investors calculated the margin squeeze that even modest tariffs could inflict. Luxury goods and automobiles, Europe's crown jewels of export, faced the most immediate threat.

Defense stocks moved in the opposite direction. Saab, Rheinmetall, and Dassault Aviation each rose more than 2% as traders positioned for the possibility that European military spending might accelerate if tensions with Washington deepened. Meanwhile, investors sought shelter in traditional safe havens. Gold hit a new record, jumping 1.7% to $4,672.49 per ounce—the culmination of steady gains throughout the previous year. The Swiss franc strengthened as the dollar weakened, another classic flight-to-safety signal.

The market turbulence reflected more than immediate tariff anxiety. The Supreme Court was actively weighing whether Trump possessed the constitutional authority to impose tariffs through emergency powers, a ruling that could fundamentally reshape his economic strategy. Treasury Secretary Scott Bessent expressed confidence the court would uphold the tariffs, comparing the situation to the Affordable Care Act decision and arguing the justices would not want to "create chaos." That legal uncertainty hung over every trade.

US futures markets, which remained open while American stock exchanges were closed for Martin Luther King Jr. Day, pointed toward a rough Tuesday opening. S&P 500 and Nasdaq contracts traded down roughly 1% as traders braced for retaliation and cascading fallout. European officials were already signaling their response. French President Emmanuel Macron pushed the European Union toward what he called a "trade bazooka"—potentially restricting American companies' access to the single market. German Chancellor Friedrich Merz, however, urged restraint, noting that France faced different tariff exposure than Germany and suggesting the need for a unified EU position before leaders met Thursday in Brussels.

The diplomatic stakes were clear: European leaders had already rejected the Greenland premise outright, emphasizing it was an autonomous Danish territory not for sale at any price. Yet the tariff threat was real, and the question now centered on how quickly and forcefully the EU would respond. Traders watched for potential targets—American technology firms, aerospace companies, agricultural exports—each representing leverage points in what threatened to become a full transatlantic trade conflict.