By Benjamin Picton, senior markets strategist at Rabobank

If Mighty Ducks 2 taught me anything it’s that “Greenland is covered with ice, and Iceland is very nice.” While that might be a handy geographic mnemonic, for the purposes of US national security policy it is, in fact, Greenland that is very nice..

Over the weekend President Trump announced additional tariffs of 10% from February 1st – rising to 25% from the 1st of June – for eight European countries resisting US efforts to acquire Greenland. The affected countries are Denmark, France, Germany, the UK, the Netherlands, Sweden, Norway and Finland. Trump said via Truth social that the tariffs would remain in place until a deal for the sale of Greenland to the United States is concluded. Consequently, gold is hitting fresh record highs, long yields are rising, equity futures point negative and both Cable and EURUSD have opened the Asian session well bid. Japanese long yields are surging for idiosyncratic reasons, but should be getting high enough to worry even the most sedate money managers.

One can probably imagine the reaction in European capitals. The Financial Times is reporting that the EU is preparing €93bn in retaliatory tariffs to give European leaders “leverage” in negotiations with Trump at the World Economic Forum in Davos this week. Emmanuel Macron was quick out of the gates with a representative of his office saying that the French President will be arguing for the EU to deploy its much-vaunted ‘trade bazooka’ (known less sensationally as the anti-coercion instrument) while Politico quotes former French diplomat Jeremie Gallon as saying “I am convinced that we must not give in... Resisting a new attempt at humiliation and vassalization is the only way Europe can finally assert itself as a geopolitical actor.”

Resistance is all well and good, but effective resistance requires the means to resist – and Europe does not have it. An ECB report released in February of last year noted that 61% of all card payments in Europe are processed by international (read: US) card schemes while thirteen EU countries are solely reliant on international schemes like Visa, Mastercard and ApplePay for electronic payment processing.

Likewise, since the start of the war in Ukraine Europe has become dependent on American energy as it attempts wean itself off Russian supplies. Before the war it was already dependent on the Eurodollar market for capital and on the American consumer for export earnings as deflation and state mercantilism in China diminished that alternative.

Over the weekend German Chancellor Merz conceded that Germany’s shutdown of its nuclear energy industry was a “serious strategic mistake” that has left the country with insufficient energy generation capacity. As a consequence of cumulative strategic mistakes, European industry is now being squeezed between the pincers of loss of input sovereignty and loss export markets. Loss of domestic industry is another way of saying loss of industrial sovereignty (for more on that, see Sky News’s excellent exposé on the parlous state of UK industry) – and industrial sovereignty is requisite for dreams of strategic autonomy.

Furthermore – and though it hardly bears saying – the EU under NATO remains a US garrison state with major US bases in the Netherlands, Germany, Spain, Italy, Poland, Belgium, Portugal, Greece and Norway. Without the US security umbrella, the EU nuclear deterrent collapses into internecine politicking over France’s willingness to play guarantor for other member states who – once upon a time – France was sceptical about admitting to the EU in the first place. This is important in a context where – as ECB’s Kazaks pointed out overnight – Europe is already at war with Russia.

Herein lies the Achilles Heel for Europe in seeking genuine strategic autonomy: the lack of political union makes it all too easy for great powers like the United States or China play member states off against each other to get what they want. Already we can see Italy’s Georgia Meloni taking the opposite approach to Macron by striking a much more conciliatory tone towards the Americans, framing recent deployments of European troops to the territory as a ‘misunderstanding’ and seeking to de-escalate. In this respect, Europe is the new Balkans that risks becoming the plaything of empires.

Perhaps Canada offers an example of an alternative approach? Mark Carney just made the first visit to China by a Canadian Prime Minister in almost a decade. Canada’s name has been mud in Beijing for years after the former Trudeau government complied with a US warrant for the arrest of Huawei executive Meng Wanzhou in 2019. Trudeau then placed substantial tariffs on imports of Chinese steel, aluminium and electric vehicles – where duties were set at 100% for the latter.

Carney has now signed a deal with China to lower EV tariffs to 6.1% up to an annual quota of 49,000 vehicles. In return China will drop tariffs on Canadian canola to 15%. Having previously described China as the greatest threat to Canada’s national security, Carney is now saying that the relations with the Middle Kingdom are more predictable than relations with the United States, and is making a show of cozying up to Beijing.

As one observer puts it on X, Carney’s pivot is a “vintage Gaullist move.” Carney is attempting to leverage Trump by signing deals with Beijing and even flirting with the idea of sending Canadian troops to Greenland. With Chinese influence having been ejected unceremoniously from Venezuela, and under pressure in the Panama Canal, the last thing the Trump administration would want is for Canada to offer China another geopolitical toehold in the Western hemisphere. Carney offering that toehold in the Arctic, directly adjacent to Greenland, must be particularly ‘de-Gaulling’ for Trump, who is so far calling the bluff by shrugging his shoulders.

However, this strategy is incredibly high risk. Not only does Carney’s backdown on Chinese EVs threaten Canada’s own auto industry (see criticism from Ontario Premier Doug Ford here), but there is always the chance that poking the (US) bear might actually elicit a response from the bear.

Canada sends ~75% of its goods exports to the United States while the United States is by far the largest supplier of armaments to Canada. Consequently, Carney will be hoping that Trump’s response is to offer him a better deal than Xi Jinping is willing to give. However, with the USMCA trade agreement up for renegotiation and the US back in a Great Power frame of mind, Carney runs the risk that Donald Trump might instead decide that Canada is also very nice...