Trump tones down tariff threat as volatility on Wall Street brings political stability

With U.S. President Donald Trump ramping up his campaign to acquire Greenland, the stock markets went through a roller-coaster ride on both sides of the Atlantic. They fell on Tuesday, with Wall Street suffering its worst trading day, after Trump threatened several European nations with a 10% tariff over the Greenland issue. However, things eased up in the next 48 hours after the president softened his tone following a meeting with NATO leaders in Davos at the World Economic Forum.

This week, investors revived the “Sell America” trade, dumping US stocks, bonds, and the dollar, following Trump's threats that sparked fresh economic concerns. Stocks on Tuesday suffered their worst day since October, while the dollar suffered its worst day since August. The sell-off hit US stocks on the first day of trading after Trump threatened new tariffs on eight European countries. The S&P 500 closed down 2.1% while the Dow Jones finished down 1.8%. Meanwhile, the tech-focused Nasdaq index fell 2.4%, with big stocks like Amazon, Tesla, and Nvidia taking a hit of nearly 3%, as per The Guardian. The dip wiped out billions of market values, which may have grabbed the attention of the president, who was scheduled to fly to Switzerland the next day. 

Soon, Trump softened his remarks and, taking to Truth Social, wrote, “Based upon a very productive meeting that I have had with the Secretary General of NATO, Mark Rutte, we have formed the framework of a future deal with respect to Greenland and, in fact, the entire Arctic Region." Typically, the president didn't share any specifics, but the sharp turn was met with great relief in markets. On Wednesday, the S&P 500 gained about 1.16% at closure, marking its best day since November, as investors called it a TACO (Trump Always Chickens Out) day, CNN reported.

After Trump assured at the WEF that the U.S. won't use “excessive strength and force” to acquire Greenland, stocks picked up pace in the afternoon,  jumped higher, and extended gains in the afternoon with the S&P 500 peaking at 1.67%, just 1.6% away from a record high. Meanwhile, Nasdaq rose 1.18% and had its best day in just over a month. 

However, it is unlikely that the state of the stock markets had a significant impact on Trump's reversal, as there are much bigger issues at stake. The biggest influencer could be America's dependence on foreign capital to finance external deficits, and Europe holding the majority of U.S. Treasuries.

Earlier, Denmark's pension operator, AkademikerPension, said it was selling $100 million in U.S. Treasuries amid the ongoing feud. While U.S. Secretary of the Treasury Scott Bessent said it was "irrelevant" and he "wasn't worried, " George Saravelos, head of FX research at Deutsche Bank, warned that such a trend could spell trouble for the markets. As per Investing.com, Europe sits at around $8 trillion of U.S. bonds and equities, which is almost twice as much as the rest of the world combined. 

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