EU has $8 trillion leverage over US as Trump threatens new tariffs

• The EU is America's largest foreign creditor with holdings in US bonds and equities nearly double those of the rest of the world combined
• Trump has signaled approximately 10% tariffs on eight NATO allies beginning February 1st, linked to his controversial Greenland acquisition efforts
• Experts warn that a shift from trade tariffs to capital market weaponization could trigger volatility in global currencies, equities, and bonds, with potential ripple effects across Wall Street and international markets

Summary

Key Development: President Trump is threatening approximately 10% tariffs on eight NATO allies beginning February 1, 2026, linked to his controversial Greenland acquisition push. This has escalated tensions between the US and EU beyond traditional trade disputes.

Critical Financial Leverage: According to Deutsche Bank strategist George Saravelos, the EU holds an estimated $8 trillion in US assets—nearly double the rest of the world combined—making it America's largest foreign creditor. This massive exposure provides the EU with significant leverage in any potential trade confrontation.

Market Implications: Analysts warn the real threat lies not in traditional tariff retaliation but in potential financial warfare. The EU could weaponize its capital market position by:

• Restricting US companies' access to EU liquidity
• Rebalancing away from dollar-denominated assets
• Accelerating withdrawals from US investments (similar to moves by Danish pension funds in 2025)

Systemic Risks: Saravelos emphasized that "weaponization of capital rather than trade flows would by far be the most disruptive to markets." Given the US's record negative net international investment position and reliance on foreign capital to fund large external deficits, any significant EU rebalancing could trigger widespread volatility across currencies, equities, and bonds globally, particularly impacting Treasury yields and investor confidence.

Bottom Line: For Wall Street, the primary risk has shifted from trade flows to capital markets. If the EU exercises its financial leverage, the consequences could extend far beyond the Greenland dispute, potentially reshaping transatlantic financial relationships and creating significant market turbulence.