Morgan Stanley argues Trump’s Greenland tariff threat is a stock-specific risk, not a systemic shock for European equities.
Summary:
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Morgan Stanley sees tariff impact as concentrated, not broad
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Only 2.2% of MSCI Europe revenues directly exposed
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Trump threatens tariffs over Greenland dispute
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EU weighs retaliation and legal options
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Defence stocks remain a key beneficiary
European equities’ exposure to President Donald Trump’s latest tariff threat is highly concentrated rather than market-wide, according to analysts at Morgan Stanley, limiting the risk of broad-based damage to regional stocks.
In a note to clients, the bank estimates that just 2.2% of revenues across the MSCI Europe index are directly exposed to the proposed tariffs. Put differently, around 10% of the index’s weight consists of companies where more than 10% of revenues would be affected by new levies, highlighting what Morgan Stanley describes as an “idiosyncratic” shock rather than a systemic one.
Trump last week threatened to impose 10% tariffs on eight European countries—Denmark, Sweden, France, Germany, the Netherlands, Finland, Norway and the UK—unless the United States is allowed to acquire Greenland. He warned the levies could rise to 25% if the purchase does not proceed, framing the move as a national security imperative. European officials have strongly rejected that rationale, characterising the threat as coercive.
The escalation has pushed EU leaders toward contingency planning ahead of an emergency summit in Brussels. Options under discussion reportedly include retaliatory tariffs on up to €93bn of US imports, as well as deploying the bloc’s Anti-Coercion Instrument, which could restrict US access to EU investment, banking and services markets. According to Reuters, the tariff response currently has broader political backing.
Morgan Stanley also highlights legal uncertainty around Trump’s trade tools. Nearly half of Europe’s Greenland-related exposure falls under tariffs imposed using the International Emergency Economic Powers Act (IEEPA)—legislation now under review by the US Supreme Court. A ruling against the administration, expected imminently, could complicate efforts to reimpose or expand tariffs tied to Greenland.
Against this backdrop, the bank reiterated an overweight stance on European defence stocks, arguing the episode reinforces Europe’s resolve to boost strategic autonomy and defence spending. More broadly, Morgan Stanley sees limited tactical downside for European equities and expects diversification flows to continue.
This article was written by Eamonn Sheridan at investinglive.com.