Global markets on edge over Greenland dispute: Is US economic leadership at risk?

The US and EU tensions over Greenland have reached a critical point where the global markets have started witnessing the massive monetary and fiscal shockwaves.

In the international order grappling with shifting sands of geopolitics and trade stand-offs, the stock markets tumbled or remained on edge globally.

Stock markets in jitters

On Tuesday, the stock market had its worst day in three months as the all three major US stock indexes fell sharply because of Trump’s growing threat to impose more tariffs on European goods.

In the US, Dow Jones declined more than 1.7 percent, while the S&P 500 dropped more than 2 percent. Moreover, the European stock markets also experienced a second day of losses.

Gold prices surged to a record above $4800 per ounce on Wednesday, as investors place their confidence in the metal as a safe haven amid escalating tensions between the US and NATO over Greenland.

Government bond prices fell, causing the interest rates to go up. Bitcoin also dropped by more than 3 percent during the selloff.

The US dollar held steady ground against its major peers, having dropped 0.5 percent, showing the biggest daily fall since December.

Stock markets in the Asia Pacific, including Japan, China, and Hong Kong remained on edge.

EU suspension of US trade deal: Another blowback

According to sources privy to the matter and reported by BBC, the EU parliament is planning to suspend approval of the US trade deal agreed in July.

The potential move is also enough to evoke the fears of investors and rattle financial markets, thereby reviving the possibilities of trade war with the US.

Moreover, options like the tariff package worth €93bn on American goods and the use of “trade bazooka” could also put the US-EU on a collision course, plunging the prospects for financial markets.

Undermining America’s position in world economic order

When it comes to financial security and economic leadership, the US precedes all the major players. For global investors, America has long been a safety haven even in the times of uncertainty and tariff headwinds.

Now, the position and authority have seemed to be in peril as the US has entangled itself in the trade standoff with the EU over Greenland’s acquisition at every cost.

“It's the loss of trust in the U.S. caused by Trump's moves over the weekend to tariff European countries and increase coercion in trying to take Greenland. (The ‍move in gold) reflects fears about global geopolitical (tensions),” said Kyle Rodda, a senior market analyst at Capital.

According to Shaun Osborne, chief currency strategist at Scotiabank, “The U.S. is plainly for a lot of international investors becoming a less friendly place to do business with, and that is likely to have an impact on investment decisions going forward.”

Adam Posen, president of the Peterson Institute for International Economics, said the recent Trump’s actions and policies like Greenland dispute, tariff wars, the US military intervention in Venezuela, and the legal battle with Fed Chair Jerome Powell, have pushed the US closer to more uncertainty with a critical turning point.

Consequently, America could knock away the pillar of economic stability, while pushing away the investors.

“Although the erosion of America’s safe-haven status might be gradual, the caution flags, including past tariff actions and the country’s high level of debt, have been there for investors to worry about for a while,” said Robert Barbera, a Johns Hopkins University economist.

A few investors were ready to back away from U.S. stocks in a big way.

"At the margin, I think it makes ‌ sense to diversify ‌ assets outside the U.S., but I wouldn't give up on the U.S. at all, given the very strong profitability of U.S. companies," said Michael Rosen, chief investment officer at Angeles Investments.

Who could be the winner?

If the US loses its place in the world’s economic order, it is feared that a multipolar world could emerge, led by China, Russia and other major powers. US-EU trade war can also pave China's way to European markets with diversification intentions.

Moreover, more regional blocs can also emerge for various economic opportunities, thereby undermining the spirit of economic order at international level.