Trump on Greenland and the Fed
Trump has provided some relief to markets by stating that he will not take Greenland by force, though his tone towards Europe remains hostile, suggesting that he will impose tariffs, which may receive a limited European response. Separately Trump stated he would announce a new Fed Chair soon.
Trump’s speech contained plenty of criticism of Europe, notably on their immigration and climate policies while stating NATO had treated the US unfairly and asking for immediate talks on the acquisition of Greenland. He also took a critical shot at Canada, following a speech by Canadian PM Carney the previous day that suggested middling powers would need to adjust to a changed world.
This suggests Trump’s threatened tariffs on eight European nations, six of which are in the EU, plus the UK and Norway, are still on. This would see a 10% tariff implemented on February 1 with 25% threatened on June 1. The economic damage done by 10% tariffs would be modest and we doubt that there will be a strong retaliation, though the EU parliament’s delay in ratification of the EU-US trade deal that eliminated EU tariffs on US goods could become significant if the US Supreme Court decides Trump’s reciprocal tariffs are unconstitutional. With Trump still insisting on acquiring Greenland and Denmark not prepared to sell, it is unclear how the June 1 tariff escalation can be avoided, but the Europeans may play for time while markets will not exclude the possibility of a resolution before June. The Supreme Court is likely to rule on Trump’s tariffs well before then.
The Supreme Court is currently considering Trump’s attempts to fire Fed Governor Lisa Cook, with the timing of the decisions also unknown. Trump’s Davos speech also saw familiar criticism of the Fed, for which he stated he would choose a new Chair soon. Trump did refer to his choice as ”he”, which seems to rule out Michelle Bowman, one of the two current Fed Governors on the shortlist. The other, Christopher Waller, appears to be the market’s choice, but he is behind NEC Director Kevin Hassett and former Fed Governor Kevin Warsh in the betting markets.