U.S. President Donald Trump’s renewed tariff threats against European allies amid rising tension over Greenland have revived talk of the ‘Sell America’ trade that emerged in the aftermath of his sweeping Liberation Day levies last April.
Stock markets bore the brunt on Monday of fears that the trade war could re-escalate, with European equities dropping over 1 per cent and U.S. stock futures taking a similar hit that points to weakness following Monday’s public holiday.
The dollar was on the back foot too, a sign that the world’s No.1 reserve currency was also in the crosshairs of Trump’s threat on Saturday to increase tariffs on goods from several European countries until the United States is allowed to buy Greenland. They will start with a 10 per cent tariff from February 1, rising to 25 per cent on June 1.
The euro bounced from its lowest since late November, along with sterling and Scandinavian currencies. The Swiss franc, a classic safe haven, headed for its largest daily rise against the dollar in a month.
“I’m sure that there are a lot of people that are fairly aghast at what happened over the weekend and probably thinking about how they hold their assets,” said Francesca Fornasari, head of currency solutions at Insight Investment.
She said the dollar could move lower but was also supported by a strong U.S. economy and U.S. shares.
And so far, market moves are modest, especially compared to last April’s near 2 per cent daily dollar slide following Liberation Day. It’s a sign, some analysts said, that markets think Trump will end up de-escalating, as he has done previously.
A pending U.S. Supreme Court ruling on the legality of Trump’s tariffs and uncertainty on how European capitals will respond also blur the picture.
The EU may respond with tariffs against the U.S., but could also implement the so far untested “anti-coercion instrument”, which could limit U.S. access to public tenders, investments or banking activity or restrict trade in services.
“For the most part so far it would appear to be more noise than signal at this point,” said Leonard Kwan, fixed income portfolio manager at T Rowe Price.
While deep and liquid U.S. capital markets – the Treasury market alone is worth US$30-trillion – make diversification for international investors hard, the U.S. is also vulnerable to foreign outflows, analysts said.
European countries are the United States’ biggest creditor, owning US$8-trillion worth of equities and bonds, almost twice as much as the rest of the world combined, said Deutsche Bank.
“In an environment where the geoeconomic stability of the Western alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part,” Deutsche Bank’s global head of FX research George Saravelos wrote.
The question is whether European investors would sell and what that would take.
ING said that there would be little the EU could do to force European private sector investors to sell dollar assets, it could only try to incentivise investments in euro ones.
Analysts noted that the market backdrop is very different to last April, given the dollar has fallen since then and the economic outlook has improved, while it remains difficult to diversify away from the dollar.
The greenback, which plunged nearly 10 per cent in 2025 against peers, has stabilised in recent months. Investors have unwound last year’s bets against the dollar and hold a modestly bullish position worth just US$240-million, meaning sentiment could shift again.
“The situation probably needs to escalate a fair bit further before they (European public sector investors) damage their investment performance for political purposes,” said Societe Generale’s head of FX strategy Kit Juckes.
While U.S. stocks had a strong year in 2025, boosted by AI hopes, they lagged global equity markets and 93 per cent of countries in a global MSCI stock index have outperformed the U.S. so far in 2026, Barclays said.
It added that appetite to diversify portfolios remains strong among the bank’s clients given U.S. risks.
“None of this necessarily implies a disorderly rotation, but we believe that it does tilt the balance of risks more towards incremental diversification into international equities,” Barclays said.
Even if European assets could potentially benefit from shifts away from the U.S., Trump’s tariff threats renew uncertainty for Europe’s economy.
Capital Economics said the countries most exposed to increased U.S. tariffs were the UK and Germany, estimating that a 25-per-cent tariff could knock 0.2 per cent–0.3 per cent off their output.
Economists warned the full economic impact could be larger given uncertainty and potential EU retaliation.
Investment by German firms in the United States nearly halved in February to November 2025 from a year earlier, Reuters reported on Monday, due to trade uncertainty and higher tariffs.
“Most investors think this is going to be a good year for the economy. There is over-confidence and therefore some fragility building,” said Oliver Blackbourn, multi-asset portfolio manager at Janus Henderson.
