The impact of tariff adjustments made by the U.S. due to Greenland on U.S. inflation!

If Trump's plan for "comprehensive tariffs on Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland" is truly implemented, it will raise inflation in the short term. Originally, tariffs are not a punishment for foreign countries, but rather a tax on the cost of imports to the U.S., and ultimately, the ones who pay will be American companies, channels, and consumers. The speed of transmission and the distribution ratio may differ.

At a level of 10%, companies still have room to maneuver; they can absorb some costs by compressing profits, delaying price increases, adjusting supply chains, or changing production locations. Therefore, the data may show a moderate increase in core goods inflation. However, at 25%, it is not just an adjustment; many industries will directly enter a price increase zone, especially for categories that are not easily substituted, have strong bargaining power, and have rigid demand. Price transmission will be more direct and could easily trigger secondary inflation, which is what the Federal Reserve is most concerned about.

Tariffs will first push up import prices and PPI, then transmit through channel inventory and pricing to core goods CPI and PCE, and finally impact services such as maintenance, insurance, and healthcare. The structure of European exports to the U.S. mainly consists of high-value-added manufacturing and key intermediate goods, so the most sensitive lines are clear:

First, automobiles and parts (Germany, UK, France, Sweden, etc.). The price increase of complete vehicles is just the surface; more deeply, the rising cost of parts will push up the costs of domestic assembly, maintenance, insurance, and used cars in the U.S., ultimately transforming the impact on goods into service inflation.

Second, pharmaceuticals and healthcare-related (Denmark, Germany, France, Netherlands, etc.). The demand is rigid, and substitution is slow, making it easier for costs to penetrate into health insurance, commercial insurance, and out-of-pocket payments, leading to passive increases in healthcare service inflation.

Third, industrial equipment, machinery, and precision instruments (Germany, Netherlands, Sweden, Finland, etc.). This type will first reflect in PPI and capital expenditure costs, transmitting to the enterprise side and then to end prices, representing a typical broad-based cost increase.

Fourth, chemical materials and specialty intermediates (Germany, Netherlands, Nordic countries). They may not immediately appear in the CPI, but will continuously raise prices in intermediate links. Additionally, there are France's consumer upgrade products and luxury goods, which may not have the largest weight in total CPI but have a strong impact on perceived inflation.

So, could tariffs actually suppress inflation?

The only scenario would be if tariffs make it even harder for the Federal Reserve to lower interest rates, maintaining high rates for a longer time, and even the possibility of rate hikes cannot be ruled out, further leading to economic recession or a significant decline in investor risk appetite.

But this is not the end!

After the tariff announcement, the EU's response has gone beyond verbal protests and has entered a state of institutional-level stress.

The European Parliament and major political groups have begun to signal a pause and freeze in the advancement of EU-U.S. trade agreements. The EPP has suspended related approval processes, and EU ambassadors have held emergency meetings to discuss unprecedented countermeasures, including tougher tools. This indicates that the EU's judgment is that this is not an ordinary trade friction, but an escalation of using tariffs as a geopolitical lever to apply pressure, necessitating the use of reciprocal or even asymmetric means to push costs back.

The U.S. imposing comprehensive tariffs on Europe will first impact the U.S.'s own import costs. Core goods will initially rise, with categories like automobiles and parts, pharmaceuticals and healthcare chains, industrial equipment and precision instruments, and intermediate chemical materials completing cost transmission first. This is a direct and certain input of inflation.

If the EU implements reciprocal tariffs, it will hit the U.S. export side (agriculture, aircraft, energy, some high-end manufacturing, etc.), which may not directly push up U.S. CPI but will compress exports, profits, and employment, thereby dragging down growth and tightening corporate cash flow. The real phase of stagflation that will amplify inflation and make it sticky is when countermeasures escalate to the supply chain level, leading to a contraction in the supply of key intermediate goods and parts, slower substitution, and rising transportation and compliance costs, thus transforming a one-time price shock into a longer-term cost increase.

Therefore, this resembles a two-way trade war; costs will not only remain at the U.S. import end but will also spread to the export end and the industrial chain, creating stronger stagflationary pressures.

Inflation will be stickier, and growth will be weaker. For the Federal Reserve, this will narrow the policy space further, with one side facing cost-push inflation and expectations management pressure from tariffs, and the other side dealing with growth pressure from damaged exports and weakened employment. Ultimately, the policy path will rely more on data and will more easily manifest in the market as increased volatility and decreased risk appetite.

In simpler terms, not only will U.S. inflation rise, but there may also be a risk of a downturn in the domestic economy and employment. Faced with this situation, the Federal Reserve is likely to be quite troubled. The danger of such shocks lies in the simultaneous occurrence of rising inflation and declining growth. Even if the Fed sees weakening employment, it will find it harder to pivot due to inflation expectations and core PCE pressures, and the market will preemptively trade for longer high rates and higher volatility.

Therefore, I personally believe that if Trump really intends to implement the Greenland tariffs starting February 1, it is very likely that market expectations will trigger another rise in inflation, leading the Federal Reserve to maintain high rates for a longer time. This could drive investors to lower their risk appetite and possibly seek refuge through asset sell-offs.

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