If Trump's comprehensive tariffs on Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland are really implemented, it will lead to a rise in inflation in the short term. Originally, tariffs were not a punishment for foreign countries, but a tax on the cost of imports in the United States, and ultimately, the burden will be borne by American companies, channels, and consumers, only the speed of transmission and sharing ratio will differ.
At a level like 10%, companies still have room for maneuver, as they can compress profits, delay price increases, adjust supply chains, and change production locations to absorb some of it. Therefore, the data may show a mild increase in core commodity inflation, but at 25%, it is not an adjustment; many industries will directly enter a price increase zone that they must enter, especially for categories that are not quickly substitutable, have strong bargaining power, and have rigid demand. Price transmission will be more direct and easier to trigger secondary inflation, which is what the Federal Reserve is most worried about.
Tariffs will first push up import prices and PPI, and then transmit through channel inventory and pricing to core goods CPI and PCE, and finally to maintenance, insurance, medical, and other service items. The structure of Europe's exports to the U.S. mainly consists of high value-added manufacturing and key intermediate goods, so the most sensitive lines are very clear:
The first involves automobiles and parts (Germany, the UK, France, Sweden, etc.). The price increase of complete vehicles is merely superficial; at a deeper level, the rising costs of parts will push up domestic assembly, maintenance, insurance, and used cars in the U.S., ultimately turning product shocks into service inflation.
The second involves pharmaceuticals and medical-related sectors (Denmark, Germany, France, the Netherlands, etc.), where demand is rigid and substitutions are slow, making it easier for costs to penetrate into healthcare, commercial insurance, and end payments, leading to passive increases in medical service inflation.
The third is industrial equipment, machinery, and precision instruments (Germany, the Netherlands, Sweden, Finland, etc.), which first reflects in PPI and capital expenditure costs, transmitting to enterprises and then to end prices, representing a typical broad-spectrum cost increase.
The fourth involves chemical materials and specialty intermediates (Germany, the Netherlands, Nordic countries), which may not immediately appear in the major CPI headlines but will continuously push up mid-link prices. Additionally, there are France's upgraded consumer goods and luxury items, which may not have the largest weight in total CPI but have a strong impact on perceived inflation.
So will tariffs instead suppress inflation?
The only scenario is that 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 drop in investors' risk appetite.
It’s not over yet!
After the tariff announcement, the EU's reaction has gone beyond verbal protests and has entered a state of systemic stress.
The European Parliament and major political groups have begun to signal a pause and freeze in the advancement of the EU-U.S. trade agreement. The EPP has suspended relevant approval processes, and EU ambassadors have convened an emergency meeting to discuss unprecedented countermeasures, including possibly more stringent tools. This indicates that the EU's judgment is that this is not an ordinary trade friction but rather an escalation of tariffs as a geopolitical lever, requiring reciprocal or even asymmetric means to push costs back.
The comprehensive tax increase by the United States on Europe will definitely first impact the import costs in the U.S. The core goods will rise first, with categories such as automobiles and parts, pharmaceuticals and medical chains, industrial equipment and precision instruments, and intermediate chemical materials being the first to complete cost transmission. This is a direct and certain input of inflation.
If the EU implements reciprocal tariffs, it will hit the U.S. export sector (agriculture, aircraft, energy, some high-end manufacturing, etc.), which may not directly push up the U.S. CPI, but will more likely compress exports, profits, and employment, thereby dragging down growth and tightening corporate cash flow. The real phase of stagflation that will amplify and sticky inflation is when countermeasures further escalate to the supply chain level, causing key intermediate goods and parts to shrink in supply, slow down replacements, and increase transportation and compliance costs, thus turning a one-time price shock into a longer-term cost increase.
Therefore, this resembles a two-way trade war, with costs not only remaining on the U.S. import side but also spreading to the export side and the industrial chain, creating stronger stagflation pressures.
Inflation is stickier, and growth is weaker. For the Federal Reserve, this will narrow the policy space even further, with one side being cost-driven inflation and expectations management pressures from tariffs, while the other side is growth pressures from damaged exports and weakened employment. Ultimately, policy paths will rely more on data and are more likely to manifest in the market as increased volatility and decreased risk appetite.
In simple terms, not only will inflation in the U.S. rise, but there may also be a risk of economic and employment decline within the U.S. In the face of this situation, the Federal Reserve is likely to feel overwhelmed. The danger of this type of shock lies in the simultaneous occurrence of rising inflation and declining growth. Even if the Fed sees employment weakening, it will find it harder to turn dovish due to inflation expectations and core PCE pressures. The market will anticipate prolonged high interest rates and increased volatility.
Therefore, I personally believe that if Trump really intends to implement the Greenland tariffs starting on February 1, it is highly likely that market expectations will trigger a further rise in inflation, which may lead the Federal Reserve to maintain high interest rates for a longer period, potentially prompting investors to lower their risk appetite and possibly seek safety through asset sales.