Davos in the end, as discussed in my earlier note this week, proved decisive in at least temporary addressing what was otherwise a brewing transatlantic political and economic storm over Greenland. Trump during his speech in Davos made it clear that “he would not use force in Greenland”, and earlier today he struck a deal with NATO Secretary General Mark Rutte concerning Greenland and the entire Arctic Region. Trump simultaneously dropped his tariff threats against a number of NATO members otherwise scheduled to come into force on February 1. This is unambiguously good news for the transatlantic economies!
The details of the “framework for a future Greenland agreement” are not clear, but Donald Trump in subsequent press comments made it clear that his prior “ownership demands” could now be accommodated though a “long-term deal that gives the United States everything we want”. With both the possibility of military action and trade tariffs seemingly off the table, and a prospective deal that Trump has now publicly endorsed, the “Greenland issue” now as discussed in the earlier note appears to have been addressed through what looks like a combination of also Republican Congressional opposition, atrocious U.S. domestic polls on the issue in a mid-term election year, robust public statements by European leaders about red lines (threats of possible military action and economic coercion against allied nations) that would be met with countermeasures in the form of troop deployments to Greenland and trade retaliation, and effective diplomacy by European “Trump whisperers” personified by NATO Secretary General Mark Rutte. EU political leaders will be quietly pleased with this development.
This outcome should remove a possibly significant tail risk from the near-term transatlantic economic and policy outlook and hence be generally market positive.
At the same time, however, it is important to recognize that the deployment of until recently fairly explicit military and trade policy threats against the territory of treaty allies, and Donald Trump in his Davos speech making a clear link between “U.S. ownership of territory and willingness to defend it” will have lastingly shaken the faith of allied nations in current U.S. international security treaty commitments. This will particularly affect U.S. treaty allies in Europe and Asia, and is likely to accelerate these U.S. treaty allies’ search for “military self insurance” and non-U.S. dependent economic relations.
This lingering uncertainty about the direction of U.S. government policy among global political and financial stakeholders is likely to only be fundamentally addressd by forceful restatements of their own policy powers to restrict the Executive Branch by both the U.S. Congress and Supreme Court, and ultimately American elections taking into consideration voters’ views of recent events.
As such, while the immediate transatlantic and indeed global geopolitical crisis appears to have been defused, the last week or so of “Greenland Crisis” has been a fundamentally destabilizing event that is likely to have lasting political effects.
Jacob
