In a significant development for global markets, President Donald Trump has announced a series of tariffs dubbed “liberation day,” set to take effect starting February 1. These tariffs, which were announced last week and are set to start at 10% (increasing to 25% starting June 1), investors reacted to this announcement with panic, resulting in a historic plunge of the major stock indices.
Trump’s tariff threats reach out beyond his European four to another four—eight in all—notably including the United Kingdom, France, and Germany. The president has asserted that these tariffs will remain in place until a deal is reached regarding the “Complete and Total purchase of Greenland.” This provocative statement has intensified fears of escalating trade tensions, particularly as Trump threatened to impose 200% tariffs on French wines and champagne.
Meanwhile, Treasury Secretary Scott Bessent has called on European countries not to respond in kind to these tariffs. Instead of adding fuel to the fire of increased militarization and tension, he highlighted the importance of maintaining diplomatic channels. In his perspective, revenge would only make it worse.
“What I am urging everyone here to do is sit back, take a deep breath, and let things play out. The worst thing countries can do is escalate against the United States.” – Scott Bessent
Bessent’s comments come as financial markets reacted negatively to Trump’s tariff announcements. The S&P 500 closed down 2.1%, with the Dow Jones Industrial Average down 1.8%. The UK’s FTSE 100 index followed suit with a decline of 0.7%. Through it all, investors have been clearly on edge about the potential magnitude of these new tariffs. Many, including us, see them as a smart tactic to spark climate diplomacy rather than a pure economic policy.
Howard Lutnick, CEO of Cantor Fitzgerald, once praised Trump’s trade war as “brilliant,” praising the president for walking away from trade negotiations. This is what Will often refers to as the president’s strategy—making it all about conversation instead of the aggressive tariff measures.
“Do I think the trade deals that we’ve set with Europe, with the UK, are they durable? I absolutely do … What I see happening is diplomacy and talking and at the table, rather than action, which is something I think the president cares about.” – Howard Lutnick
The market’s reaction to these changes has been immediate. On Tuesday, gold prices flew over $4,700 (£3,500) an ounce, reaching an all-time high. During the same period, silver hit a record high at $95.52 an ounce. These trends reflect that amid uncertainty over the future direction of U.S. trade policies, investors are flocking to safer assets.
Minerva Analysis’s Kathleen Brooks describes the situation as a “man-made crisis.” We’re entering a time that could be just as dangerous. As trade tensions persist, says Rosalind Helderman, we might expect even more market instability.
“Overall, this is a man-made crisis, and the continued sell-off on Tuesday suggests that US threats to Greenland and their effects on financial markets could have further to go if the situation does not de-escalate soon.” – Kathleen Brooks
Add to that, Bessent’s optimism that, despite the current turmoil in financial markets, retaliation from European nations can be avoided. He called on nations to act in accordance with their long-term interests and not resort to knee-jerk measures that would make things worse.
“I would say this is the same kind of hysteria that we heard on 2 April. There was a panic.” – Scott Bessent
This ongoing tension raises fundamental questions about the future of U.S.-European relations. These tariffs could have a major domino effect on global trade patterns. Rachel Reeves addressed the need to protect what works in coalitions—including our NATO partners—to safeguard national interests.
“For all of your strengths, we do also need to preserve some of the things that the US has benefited from, in the NATO alliance, and the western alliance, not because it is benevolent, but because I believe it is in your country’s national interest.” – Rachel Reeves