When conflict moves from diplomacy to Markets: Lagerlöf’s view on the situation

At the beginning of 2026, international politics and trade policy have once again moved to the forefront, with visible effects on financial markets and the pricing of risk. US President Donald Trump has threatened to impose import tariffs of 10 percent, rising to 25 percent in June, targeting several European countries including Sweden. The tariff threat follows Europe’s opposition to his renewed claims over Greenland, a territory of significant geostrategic importance that he previously attempted to purchase but was firmly rejected by Denmark.

The European Union responded with strong criticism, describing the statements as unacceptable and potentially damaging to transatlantic relations. The EU is now considering activating its Anti Coercion Instrument, introduced in 2023 to protect member states against economic pressure. Possible measures include import restrictions, limited market access or broader countermeasures directed at US goods.

Reactions were immediate. EU leaders convened emergency meetings to coordinate a response, including proposals to reintroduce tariffs on US goods worth up to approximately EUR 93 billion. Discussions are intensifying ahead of the World Economic Forum in Davos, where President Trump is expected to attend and where European leaders are likely to seek a common position.

Markets reacted swiftly. Futures declined, the US dollar became more volatile and the OMXSPI opened lower, initially down around two percent. At the same time, underlying macroeconomic trends remain in focus, including upcoming central bank decisions, inflation trajectories and growth forecasts. The combination of geopolitics and macroeconomic uncertainty has caused risk premia to adjust more rapidly than usual, creating a more complex environment for investors.

Against this backdrop, we asked Peter Lagerlöf to comment on the situation and reflect on how investors should think about current developments.

How do you assess the recent trade policy developments and their impact on market risk?

“This represents a power struggle between the United States and the European Union. Trump has clearly crossed a line, and European leaders are unlikely to retreat from their support for Denmark. The EU will now need to demonstrate its economic leverage in a manner similar to how China has responded in previous disputes. Many investors will likely reconsider the extent of their exposure to US assets.”

What impact could a potential escalation of transatlantic trade tensions have on global growth and corporate investment?

“That depends on the duration of the conflict and the nature of any resolution. This situation differs from the tariff shock in April 2025, which was primarily about trade flows. This time, the issue concerns territorial claims involving a NATO ally. If the conflict persists, it will negatively affect growth prospects and corporate investment sentiment. The attractiveness of investing in the US could also be reassessed.”

How do geopolitical tensions influence your sector allocation and regional exposure decisions?

“So far, these tensions have not affected our portfolio decisions. History shows that security policy developments rarely have lasting effects on financial markets. It is only when such events materially impact global growth and corporate earnings that equity markets experience sustained adjustments.”

Are there sectors or asset classes that could benefit or suffer if trade barriers escalate?

“Companies primarily exposed to domestic demand, such as real estate firms, telecom operators and banks, could benefit. Companies with substantial international sales exposure would be more vulnerable. However, this is a simplified view. The Nordic countries are small, open economies with significant export dependence. A decline in exports would eventually spill over into domestic activity.”

How much weight do you place on potential diplomatic solutions in your investment decisions?

“Usually very little. This time, however, even the Davos meeting will be relevant for markets. The confrontation between the US and the EU will either result in a negotiated solution, for example a joint NATO initiative to strengthen the defence of Greenland, or a prolonged stalemate. The former would be positive for equity markets, the latter negative.”

Have markets already priced in this geopolitical stress?

“No. Equity markets have been strong leading into this episode, supported by improving global growth and rising corporate earnings. Trump’s earlier statements about Greenland were largely seen as rhetorical. Now the situation is more serious, and an escalating trade conflict serves no one’s interests.”

Are there lessons from previous trade disputes that inform your analysis?

“This is not fundamentally a trade conflict but a territorial dispute, which makes historical comparisons more difficult. That said, earlier US tariff measures ultimately had less impact than initially feared. Companies demonstrated an ability to adapt production and sales relatively quickly to new trade conditions.”