Economic Integration as a Double-Edged Sword: Analysis of Greenland's Tariff Crisis

The economic interdependence between the United States and the European Union presents itself as a double-edged sword in today’s times. While historically driving decades of mutual growth, a scenario of trade conflict could turn this very integration into a channel of simultaneous contraction. A 2025 study by Oxford Economics precisely modeled this risk, revealing how geopolitical tensions over Greenland could compromise the globally rebuilt economic stability after the pandemic.

Greenland at the Center of a Geopolitical Conflict with Strategic Roots

The world’s largest island is not merely a remote Arctic territory. For global policymakers, Greenland represents a crossroads of vital strategic interests. Its location offers control over new navigation routes and military oversight in an increasingly accessible Arctic. Additionally, its untapped reserves of rare minerals—essential for modern technology and green energy transitions—transform the region into a geopolitical prize.

The renewed U.S. interest in acquiring Greenland from Denmark is not a recent phenomenon, but the intensification of competition for the Arctic has brought this issue back to the forefront of debate. For the European Union, with Denmark as a member state, any external attempt to alter Greenland’s status poses a direct challenge to the bloc’s sovereignty and strategic autonomy. This fundamental clash of interests creates the potential for a large-scale economic conflict.

Oxford Economics Model: When Economic Interdependence Becomes Vulnerability

Oxford Economics’ economists built a rigorous model to assess the consequences of a trade escalation in this context. The modeled scenario features the United States imposing an additional 25% tariff on imports from six specific European Union countries. In response, the EU would implement swift and substantial retaliations on a wide range of American products—a tit-for-tat cycle that would form the core of a potential trade war.

The quantifiable results are severe. U.S. GDP growth could decline by up to 1.0 percentage point relative to baseline forecasts. The Eurozone would face comparable losses, between 0.9 and 1.1 percentage points, with potentially more persistent effects due to structural factors in the bloc’s economy. But the damage would not remain confined to the Atlantic.

The combined economic weight of the United States and the Eurozone—accounting for nearly 45% of global GDP—ensures that shockwaves propagate through global supply chains, financial markets, and investor confidence worldwide. The projected global growth rate of 2.6% would be critically significant as it represents a sharp decline from the 2.8%-2.9% average of the three years prior to the report. Even more alarming, excluding the anomalous pandemic year of 2020, it would be the lowest annual rate since the 2009 global financial crisis.

Cascading Scenarios: From Bilateral Trade to Global Fragmentation

The ripple effects of a transatlantic trade conflict extend far beyond percentage points of GDP. The deep integration between these economies—which has become a double-edged sword—would amplify damage transmission mechanisms.

First, global companies would accelerate efforts to “de-risk,” moving production out of the U.S. and EU. This re-fragmentation of supply chains would increase costs and reduce efficiency, with ripples affecting suppliers across Asia, Latin America, and Africa.

Foreign exchange markets would face extreme turbulence. Currencies like the dollar and euro would experience significant volatility, while global stock markets would face ongoing downward pressure. Geopolitical uncertainty would paralyze long-term investment decisions.

Multilateral institutions, particularly the World Trade Organization, would become even more marginalized, accelerating the erosion of a rules-based global trading order. Export-dependent nations—in Africa, Asia, and Latin America—would suffer from reduced demand and commodity price instability, exacerbating already deep global inequalities.

Implications for Investors and Policymakers

The manufacturing sector would face particularly severe disruptions. Automobiles, aerospace, agricultural products, pharmaceuticals, and luxury goods—all with high levels of transatlantic trade—would experience immediate and severe disruptions due to the integrated nature of their production.

It is crucial to highlight that Oxford Economics’ analysis does not predict inevitability. The report explicitly models a potential scenario, not a deterministic forecast. It functions as a quantified risk analysis, highlighting the economic bets policymakers should consider when weighing Greenland’s strategic appeal against the profound and predictable economic costs.

Experts emphasize a fundamental lesson: modern global economy remains deeply interconnected. Regional geopolitical ambitions can quickly metastasize into global economic crises. The economic integration, which has proven to be a double-edged sword, requires careful risk management by policymakers on both sides of the Atlantic.