Nobel economist: Europe has much more power than Trump thinks

During his Wednesday, January 21 speech in Davos, Switzerland — which he is visiting to attend the 2026 World Economic Forum (WEF) — U.S. President Donald Trump angrily berated European leaders and the North Atlantic Treaty Organization (NATO) for not supporting his push for American control of Greenland, a Danish territory. Trump is refusing to rule out the possibility of taking the Arctic island by force, and many MAGA Republicans are hoping that the threat of tariffs will force European officials to go along with Trump's demands.

But liberal economist Paul Krugman, in a Substack column published the day of the Davos speech, argues that European countries have much more economic bargaining power than Trump and his MAGA loyalists think.

"True, beating the drum about Greenland serves multiple other purposes: deflecting attention from Renee Good's murder, the Epstein files, and his sagging poll ratings — humiliating the Europeans, who he hates for their decency and strong democracies — and getting another testosterone rush from flexing American military muscle," Krugman explains. "But it's mostly just a tantrum. However, we can say something about the likely effects of his attempt to coerce Europe with tariffs — namely, that it won't work. Only in Trump's fantasies does American possess huge economic leverage over Europe. To the extent that we have any leverage over them, it's matched by the leverage they have over us."

The former New York Times columnist goes on to explain why steep new tariffs against European countries would hurt Americans the most.

"The starting point for any discussion of Trump's tariff threats should be the observation that tariffs are a tax on U.S. consumers and businesses, not foreigners," Krugman notes. "That's what economists believed before Trump started his tariff spree; the results of his tariffs show that they were right. Foreign producers have not, contrary to Trump's predictions, absorbed the tariffs by significantly cutting the prices they were charging U.S. customers…. So Trump's imposition of tariffs on European nations that have sent troops to Greenland is basically a declaration that he will punish American consumers and businesses until Europe gives him what he wants."

The economist continues, "But won't Europe be hurt by loss of U.S. export markets? Maybe, but not by much. The European economy is huge — almost as big, in dollar terms, as the U.S. economy — and doesn't depend crucially on the U.S. market. It's worth noting that very high U.S. tariffs on China haven't appeared to slow China's economic growth at all. Furthermore, if America and Europe get into a trade war, U.S. companies will be hit as hard as European companies. That's because America sells almost as much to Europe as Europe sells to America."

Paul Waldman's full Substack column is available at this link.