Trump's Greenland Tariff Threat Tests 'TACO' Resilience as Euro Buckles

Davos — Geopolitical friction has returned to center stage as the Trump administration escalates its feud with European leadership, threatening a 10% tariff on eight nations including Germany and France following a rebuffed attempt to acquire Greenland.

The 'TACO' Trade Paradox

Despite the VIX jumping 27% to multi-month highs, equity markets have shown surprising resilience, underpinned by the so-called “TACO” trade (Trump Always Chickens Out). This thesis assumes the White House will retreat from economic warfare to preserve stock market gains.

However, Deutsche Bank strategists warn of a paradox: market complacency may embolden the administration to actualize threats. Polymarket data suggests only a 17% probability of tariffs hitting by February 1, yet the tail risk is rapidly being repriced in the FX and commodity sectors.

• VIX Spike: 27% increase to multi-month highs.
• Polymarket Odds: 17% probability for February 1 tariffs.
• Gold Price: Touched $4,880/oz in spot markets.
• Tariff Threat: 10% levy on major European exporters.

Geopolitical Collateral Damage

• Ukraine Aid Frozen: An $800 billion reconstruction package stalled due to the Washington-Brussels rift.
• Euro Under Pressure: Breakdowns in transatlantic relations risk further depreciation against the dollar as the EU faces trade barriers.

Gold Approaches $5,000

Gold is the primary beneficiary of this dysfunction. Spot prices touched $4,880/oz driven by central bank accumulation and private sector hedging. The breakdown in trust between the US and the EU has accelerated the trend of “de-dollarization” in portfolio allocations.