If geopolitics had a thermometer, the mercury would have dropped by a couple of degrees over the last 48 hours. At the start of the week, European leaders were outraged to be facing increased tariffs—again—from their trading partner and ally, the U.S., if they did not comply with demands from the White House for the purchase of Greenland.
A framework for an accord between the White House and NATO, which would ramp up U.S. defense systems in the Arctic. Details of the agreement remain sparse, particularly regarding the extent of U.S. military control over NATO territory that is part of the Kingdom of Denmark.
In turn, Trump scaled back his threats of new duties on a number of European nations, and European threats of retaliation cooled as a result.
While the deal eases some of the panic in negotiations, it doesn’t tackle the steady drift between the U.S. and the partners it once considered allies.
That’s the view of Macquarie’s global strategists Thierry Wizman and Gareth Berry. In a note sent to clients (shared with ), the pair stated there is a “mutual alienation” between the U.S. and its European counterparts. “In that vein, we can still speak of a fragmented, more perilous world, where the U.S. is less revered, the USD loses its reserve currency status, and the U.S. instead focuses on the Western Hemisphere as its only defensible stronghold,” the duo explained.
Tension between the U.S. and Europe—whether the EU or the UK—has grown as the second Trump administration charts its course. Issues have included Europe’s contributions to NATO and Trump’s tariff regime. “Even in the so-called Greenland deal reached yesterday, there are elements of mutual mistrust,” write Wizman and Berry. “For instance, a deal to cede part of Greenland to the U.S. may have only been struck in exchange for the U.S. continuing (very reluctantly) to support Europe’s stance that Ukraine should remain entirely ‘in Europe’—that is, outside Russia’s influence.”
This European demand thus potentially places the U.S. at odds with Putin, hence the impetus for the U.S. to bolster its defenses against Russia by acquiring Greenland. Meanwhile, Europe has maintained a cordial approach to America’s rival China, with
“This perceived threat to the U.S., brought about by Europe’s demands and actions, drives the U.S.’s hostile attitude (and military threats) toward Europe, particularly concerning the ‘need’ for Greenland and the U.S.’s expectation for Europe to ‘step up’ civilizationaly,” the note stated.
Threat to the dollar
Interestingly, the idea that Europe might react to America’s actions by reducing their investment in U.S. assets appears to have been addressed by Treasury Secretary Scott Bessent (who dismissed) claims that European buyers of U.S. debt could exit their positions in the bond market, but some indication of that was visible in the increase in yields this week. The selloff diminished later as transatlantic relations became more normal.
This is what [someone] said this week: The nation is running a substantial annual budget deficit, consequently amassing a growing national debt. It requires that debt to be financed by foreign countries. And that raises a question about America’s long-term economic might.
In general, Macquarie wrote in a Global Outlook memo last December that the actions of the Trump 2.0 administration have contributed to the perception that the U.S. is an increasingly unpredictable partner. A “watershed” moment occurred with the Liberation Day tariffs, which drove investors to seek assets outside the White House’s sphere of influence and thus away from the U.S. dollar.
The incident will cast a “long shadow” over confidence in the USD, the team wrote last year, and the weaponization of America’s economic might “added greater urgency to the search for alternative currencies as a store of value or for transactions.”
Trump’s most recent about-face will do nothing to dispel concerns that America is no longer the financial safe haven it once was. As the Macquarie strategists wrote in their latest note, the current situation is “not a favorable place if you aim to preserve the USD’s reserve currency status. That status was founded on the basis of U.S. leadership and protection, in exchange for a small degree of subservience (and financing) from the U.S.’s allies and others who joined the U.S.-led rules-based order.”
“Without that understanding, diversification away from the USD will eventually occur, even if it begins with diversifying into gold.”