Latent Demand for Greenland: How a Trade Conflict Could Reduce Global Growth to 2.6%

A geopolitical dispute that has so far remained contained within diplomatic negotiations risks turning into a global economic crisis. It is a latent demand that, once activated, could trigger devastating economic consequences. Researchers at Oxford Economics modeled a scenario where tensions over Greenland lead to a transatlantic trade conflict, reducing global GDP growth to just 2.6%.

The Transatlantic Trade Conflict and Its Geopolitical Roots

Oxford Economics’ detailed research reveals how a latent demand for strategic resources and Arctic influence can catalyze a chain reaction in the economy. The model examines a scenario where the United States imposes an additional 25% tariff on imports from six key European Union nations, motivated by renewed interest in acquiring Greenland. This action would provoke immediate retaliation from the EU, initiating a cycle of trade conflict that would spread through global financial markets, international production systems, and investor confidence.

The magnitude of this potential conflict should not be underestimated. The US and the Eurozone together account for approximately 45% of the global economy. Any significant disruption between them directly affects the planet’s central economic engine.

Impact Projections: GDP, Tariffs, and Global Growth

The figures presented by Oxford Economics paint a concerning picture. US GDP growth could fall by up to 1.0% relative to baseline projections. The Eurozone would face a comparable reduction, between 0.9% and 1.1%, with potentially longer-lasting effects due to regional economic structures.

The global rate of 2.6% is particularly alarming when compared to historical context:

• Average growth 2019-2023: 2.8% to 2.9%
• Baseline projection 2025: approximately 3.1%
• Conflict scenario: 2.6%

This decline would represent the lowest annual growth since the 2009 financial crisis, except for the pandemic year of 2020. Essentially, the world would regress economically.

Behind the Dispute: Why Greenland Matters Strategically

Greenland is not just a remote populated territory. It holds unparalleled strategic value in three dimensions:

Its Arctic position offers fundamental military and navigational advantages in an era where new trade routes are emerging due to melting ice. Vast reserves of rare minerals—critical elements for modern technology, batteries, solar panels, and energy transition—make it a geopolitical prize. Finally, in a renewed global competition among major powers for Arctic control, Greenland represents a focal point of this emerging rivalry.

The US’s historical interest in acquiring the territory has resurfaced strongly. The European Union, especially through Denmark which exercises sovereignty over the region, perceives any external attempt as a direct challenge to its strategic autonomy.

The Role of Economic Integration: Amplification of Risks

A crucial aspect that differentiates this scenario from previous trade conflicts, such as the US-China tariff war of the late 2010s, is the deep integration of transatlantic economies. Supply chains are tightly intertwined, reciprocal direct investments are substantial, and financial markets are synchronized.

As the report highlights: “The integration of the transatlantic economy is a double-edged sword. It has been a driver of mutual growth for decades, but in a conflict scenario, it becomes a conduit for mutual contraction.” This reality means that economic damage transmission mechanisms are multiple and severe. It’s not just about direct tariffs but about economic slowdown propagating through all trade connections.

Cascading Effects: Supply Chains, Currencies, and Emerging Economies

A US-EU trade war triggered by the latent demand over Greenland would unleash multiple secondary effects:

Refragmentation of Supply Chains: Companies would accelerate efforts to “de-risk” their operations, moving production outside the US and Europe. This would increase costs and reduce efficiency, raising prices for global consumers.

Currency and Market Volatility: Forex markets would face extreme turbulence as investors seek safety. Stock markets would suffer ongoing pressure amid geopolitical uncertainty.

Collapse of Multilateral Institutions: The World Trade Organization, already marginalized, would be further weakened, eroding the rules-based global trading order.

Disproportionate Impact on Developing Economies: Export-dependent nations in Africa, Asia, and Latin America would be severely affected by reduced global demand and commodity price instability. Global economic inequalities would deepen significantly.

The net effect is a scenario where a regional conflict over an island morphs into a genuinely global economic crisis, with consequences far beyond the direct protagonists.

Lessons for Policymakers

Oxford Economics’ report does not present an inevitable forecast but a warning based on data. The latent demand for strategic influence over Greenland, if not diplomatically managed, could cost the world tenths of a percentage point in economic growth. For already fragile emerging economies, for companies dependent on transatlantic trade, and for investors seeking stability, the risks are real and quantifiable.

The central message is prudence: the profound and predictable economic costs of a trade conflict should weigh heavily in decisions about geopolitical ambitions, no matter how strategically attractive they may seem in the short term. The interconnectedness of the modern global economy means that no one remains insulated from the consequences of such conflicts.