Weekly Update - Europe – United States: an economic interdependence that limits the risk of escalation

2026 is off to an intense start on the geopolitical front. Greenland has, within just a few days, become a major hotspot of tensions between the United States and Europe, reviving the threat of new tariffs. By the end of the week, relations appeared to ease slightly, but rhetorical escalation could quickly return. In this context, it is useful to recall the depth of transatlantic economic ties, which make any tariff confrontation more costly than credible.

Robust two-way trade in goods and services. The United States and the European Union form one of the most integrated trading blocs in the world, accounting for nearly 30% of global trade and around 43% of global GDP.
In goods, bilateral trade reached €867 billion in 2024—almost double the level of a decade ago. The US is now the EU’s largest export market and its second-largest supplier after China. Links are especially strong with Germany, Italy and Ireland. Structurally, the United States is more dependent on imports of European goods. It runs a trade deficit of nearly €200 billion with the EU and would face significant substitution challenges in several industrial sectors. The unilateral tariff hikes introduced by the US in 2025 — +15% on most European goods and +50% on steel and aluminum — did not reduce import volumes. Available analyses also show that these tariffs were absorbed primarily by Americans themselves, either by the importing company or the final consumer.
In services, the imbalance goes the other way. Europe runs a deficit of around €150 billion, concentrated in digital, IT and telecommunications services. The scale of intellectual property–related flows highlights the role of large US tech firms, which explains Ireland’s significant weight in this category.

 A decisive financial interdependence. Beyond trade, financial ties between the two regions act as another stabilizing force. A large share of global market, payment and clearing infrastructure is US-based. At the same time, Europe is the largest foreign holder of US sovereign debt: it owns about 40% of Treasuries held by non-residents, or roughly 12% of the total outstanding. This deep financial interconnection limits the true capacity to impose heavy retaliatory measures without triggering a boomerang effect.

A market reaction that remained measured. Financial markets began the week on a sharply negative tone before recovering. This was particularly the case for both European and US equity markets. Bond market movements, however, were more pronounced. The US 10-year yield rose by 15 basis points in two days, returning to its September 2025 levels, while the dollar weakened to 1.17 against the euro. These tensions were amplified by specific pressures on long-term Japanese rates. By contrast, European yields remained relatively stable: 3.5% for the 10-year OAT and 2.8% for the Bund.

A strategic positioning that remains unchanged. In this environment, we maintain our central scenario of a gradual de-escalation. The risk of aggressive rhetoric persists, but the underlying economic fundamentals limit the likelihood of a lasting trade conflict. We therefore choose not to adjust our positioning. Our convictions remain unchanged: a preference for European and Asian equities, and a strong underweight in sovereign bonds, which continues to shield us from rate-driven market tensions.

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