Europe to Suspend U.S. Trade Deal Approval Amid Escalating Tensions

On Wednesday, the European Parliament intends to put off ratification of the U.S. trade deal entered into on July 24. The U.S.'s recent threat of tariffs on the territory of Greenland is heightening the risk of the start of a complete trade war between the two trading partners.

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After an initial downturn of over 1.7% on the Dow and over 2% on the S&P 500, and around 2.4% down on the Nasdaq, on Tuesday, the U.S. financial markets fell sharply, with Gold rising to an all-time high of $4,800 per ounce.

Asian-Pacific shares were having a mixed start to their trading day. 

Trade Deal Background and Breakdown

The Trade Deal signed at Donald Trump's Turnberry Golf Club reduced U.S. tariffs on all but a small percentage of goods originating from the EU down to 15% from the initial threat of 30%, and added an additional commitment from the EU to invest U.S. dollars and make changes to boost U.S. exports to Europe.

The Approval from the European Parliament to enact the Trade Deal is still pending, as the threats coming from the U.S. regarding the potential of imposing tariffs on European imports to Greenland were sufficient to prompt key politicians to halt further progress towards approving the trade deal, as they felt that such tariff threats might have negative implications for EU sovereignty.

Between the U.S. and EU, trade accounts for €1.6 trillion per year, which is almost 30% of the total trade that occurs across the global marketplace.

Market Reactions and Safe Havens

Shares in Europe fell for the second consecutive day on Tuesday. The indices for Japan and Hong Kong saw small decreases on Wednesday, while the Shanghai Composite has gone up slightly.

On Monday, the price of silver eased from its all-time high above $95 per ounce. The U.S. dollar steadied after dropping 0.5% overnight. Geopolitical tensions have revived "Sell America" activity, leading to a rise in the price of precious metals over the past year.

Retaliation Risks and U.S. Response

Countermeasures from the EU are expected soon. Possible tariffs on €93 billion worth of U.S. goods are scheduled for February 7 unless there are some remaining extensions in time. French President Emmanuel Macron is advocating for an EU version of the anti-coercion tool.

Leaders in the Treasury and Commerce Departments are calling for restraint prior to President Trump's address at Davos. Retaliatory actions by other countries could lead to retaliatory responses by the U.S.

A forthcoming ruling from the United States Supreme Court will question the validity of tariffs. Most of the retaliatory measures taken by Canada were revoked in September following initial threats by the U.S. The global markets are watching Davos closely, as alliances are being pressured by trade and tariffs.