Holding $10 trillion in U.S. stocks and bonds, would Europe dare to fight a "capital war"?
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As Trump threatens a tariff war, how Europe might use its over 10 trillion dollars in U.S. assets has become a risk the market is watching.
According to CCTV News, U.S. President Trump announced that starting February 1, all goods exported from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland to the U.S. will be subject to a 10% tariff until a “full and thorough agreement to purchase Greenland” is reached.
Wallstreetcn mentions that Trump is equating the tariffs to an “island purchase ransom,” and Deutsche Bank warns that the situation could escalate to a “weaponization of capital.” According to U.S. Treasury data, the total amount of U.S. assets held by the EU exceeds 10 trillion dollars, with the UK and Norway holding even more such assets.
Most of the U.S. assets held by Europe are owned by private funds not controlled by governments. If Europe weaponizes its holdings of U.S. assets, it would mean a serious escalation of the situation. This would effectively expand a trade war into a financial conflict directly impacting capital markets.
Tense sentiment was already seen in markets on Monday; U.S. stock futures, European stocks, and the dollar came under pressure, while gold, safe-haven currencies like the Swiss franc, and the euro became the main beneficiaries. This is similar to the market reaction last April when Trump imposed tariffs, suggesting that a "dump the U.S." trade might make a comeback.
(Spot gold prices surged, at one point approaching $4,700)
Many Obstacles to Implementing "Weaponization"
According to U.S. Treasury data, the total amount of U.S. assets held by the EU exceeds 10 trillion dollars, with the UK and Norway holding even more such assets. These assets include U.S. treasury bonds and stocks, and some are held by public sector funds.
Although some U.S. assets are held by public sector entities—most notably Norway’s $2.1 trillion sovereign wealth fund—the vast majority are held by numerous private investors.
The research team led by Carsten Brzeski at ING pointed out:
The EU can hardly force private sector investors in Europe to sell dollar assets; it can only try to incentivize investment in euro assets.
From the perspective of policy makers, even for public sector funds such as sovereign wealth funds, they also face a dilemma as asset holders. For example, the primary benchmarks for Norway's sovereign wealth fund are commercial and risk-based criteria, not political considerations.
Whether funds are public or private, the market effects of large-scale, strategic dumping of U.S. assets would be a negative-sum game in economic terms—“hurting others while also harming oneself”—which is a natural concern and primary obstacle for decision-makers considering such strategic action.
Most strategists believe that, given Europe’s general reluctance to confront Trump since his return to power a year ago, it is unlikely that policymakers would ultimately adopt such an extreme action. This move might also hurt European investors themselves.
Juckes of Societe Generale said on Monday:
Public sector U.S. asset investors in Europe might stop increasing their holdings or start selling, but for them to sacrifice investment performance for political reasons, the situation would need to escalate much further.
More Likely Option: Traditional Trade Tariffs
Wallstreetcn notes, citing a Goldman Sachs report, that the EU could respond at three levels.
The mildest option is to shelve the previously negotiated EU–U.S. trade agreement. This agreement requires the approval of the European Parliament, and under the current circumstances, several members of the European Parliament have stated that “the conditions for approval are not currently met.”
The second option is to use the list of reciprocal countermeasures prepared last year and impose tariffs on U.S. goods.
EU leaders have discussed the possibility of imposing tariffs on 93 billion euros ($108 billion) worth of U.S. goods, with Germany’s Finance Minister urging Europe to prepare the strongest possible trade countermeasures.
However, the market is not unfamiliar with this approach, and its marginal economic and political effects are limited.
The third is the Anti-Coercion Instrument (ACI), designed for situations where “third countries attempt to coerce the EU or member states using economic means.”
Unlike traditional tariffs, the ACI is not a single trade retaliation tool. According to Goldman Sachs, it allows the EU to adopt a range of non-tariff countermeasures, including but not limited to: restricting investment, limiting access to public procurement markets, taxing foreign assets and services, and even measures related to digital services and intellectual property.
It should be emphasized that launching the ACI does not mean that countermeasures are implemented immediately. Goldman Sachs points out that the process itself involves multiple steps. However, the signaling effect of launching it is substantial: It means the EU would no longer be limited to a “tit-for-tat” tariff game, but would start considering responses at the levels of capital, rules, and systems.
Risk Warning and DisclaimerMarkets are risky, and investment requires caution. This article does not constitute personal investment advice, nor does it consider the individual investment objectives, financial situation, or needs of any particular user. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their specific circumstances. Investing based on this article is at your own risk.
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