The threat of tariffs being placed on several European countries, including the UK, by the US administration is likely to shift markets and investors into a defensive mindset in anticipation of market volatility, industry experts have argued.

US President, Donald Trump, announced plans to implement 10 per cent tariffs on eight European countries from February over their refusal to back his proposed acquisition of Greenland, rising to 25 per cent in June.

While Trump has made and withdrawn plans for tariffs in the past, further volatility appears likely as concerned markets react to the latest developments.

“Once again it feels like the world, and thus financial markets, are beholden to the thought process of Donald Trump,” said Quilter Cheviot head of equity research, Amisha Chohan.

“His decision on what to do about Greenland, and more importantly the reaction from European allies, will decide how markets react. For now, he has slapped modest tariffs on those supposed allies with the threat that a trade war could escalate from here.”

Chohan noted that what Trump said and what he does can often be very different things, and markets have been “fairly muted” in their reaction for now, but companies that were most exposed have sold off as a result.

“What this is likely to do is to shift the mindset of investors from a previously ‘risk on’ environment to a ‘risk off’ one and going more defensive in their asset allocations,” she added.

Chohan said the markets were unlikely to see a repeat of the scale of the falls last April, but the latest tariff threats had the potential to cause volatility in inflation, and therefore interest rates may not come down as quickly as investors would like.

“However, what these events do show is that it pays to be diversified and investors need to ensure they have a good mix of both assets, but also sectors and geographies too,” she said.

“Furthermore, while valuations in the US have been high, there remains good headwinds for investors in the likes of Europe where there is a concerted effort to promote economic growth.

“Provided this latest trade war does not escalate or become protracted, those friendly conditions should remain in place for some time.

“Ultimately, volatility is part and parcel of investing and of financial markets. Riding any potential dips is the best strategy anyone can do during such periods, alongside topping up their pots if they have the financial means and ensuring they are not overexposed to one area of the market that is likely to be hit hard by Donald Trump’s actions.”

Rathbones head of market analysis, John Wyn-Evans, stated that markets had reacted negatively to the threats and further volatility was likely.

He warned that a 10 per cent tariff could shave around 0.1 per cent off GDP for the most exposed economies, including the UK, while a 25 per cent tariff could hit output by 0.2 to 0.3 per cent.

“The political ramifications are greater,” Wyn-Evans continued. “Any attempt to coerce Denmark or force a transfer of Greenland would severely damage transatlantic relations and strain NATO.

“Greenland’s strategic importance – from early‑warning defence to control of Arctic routes – helps explain Washington’s posture, but sovereignty is not negotiable. Limited security concessions may be possible, but any broader deal remains speculative.

“Ultimately, this episode reinforces the shift away from ever-increasing global integration and toward a world defined by sharper spheres of influence – a reality businesses and investors must increasingly plan for and deal with.”

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