As Europe considers how best to respond to U.S. President Donald Trump’s latest threats over Greenland’s sovereignty, there’s one extreme potential counter measure that’s fueling debate among investors.

European countries hold trillions of dollars of U.S. bonds and stocks, some of which sit with public sector funds. That’s spurring speculation they could sell such assets in response to Trump’s renewed tariff war, potentially driving borrowing costs up and equities down given U.S. reliance on foreign capital.

But that’s easier said than done. The bulk of these assets are held by private funds outside the control of governments, and in any case such a move would likely hurt European investors too. Most strategists therefore believe there’s a low chance policymakers would ultimately go so far, given their broad reluctance to stand up to Trump since his return to power a year ago.

The mere fact that Deutsche Bank AG’s chief global currency strategist is nevertheless openly talking about the “weaponization of capital” shows such retribution is becoming a tail risk for markets, as Trump’s expansionist policies redraw the geopolitical landscape. U.S. assets held within the European Union amount to over $10 trillion, according to U.S. Treasury data, with more in the UK and Norway.

“The U.S. net international investment deficit is huge, and a potential threat to the dollar, but only if foreign holders of U.S. assets are willing to suffer financially,” said Kit Juckes, chief currency strategist at Societe Generale SA.

“It may be that European public sector investors in U.S. assets either stop accumulating or start selling, but the situation probably needs to escalate a fair bit further before they damage their investment performance for political purposes,” he said on Monday.

The escalation in tensions is hurting U.S. equity futures, European stocks and the dollar on Monday — with gold, the haven Swiss franc and euro among the main beneficiaries. That’s a milder version of how investors reacted after Trump’s tariffs last April — showing the “Sell America” trade may be back.

The most tangible reaction from the EU so far has been a proposal to halt approval of its July trade deal with the U.S. Leaders are also in talks to potentially impose tariffs on €93 billion ($108 billion) of U.S. goods, with Germany’s finance chief urging Europe to prepare its strongest trade countermeasure in response.

Any weaponization of European holdings of U.S. assets would represent a severe escalation. In effect, it would expand a simmering trade war — which investors largely shrugged off last year — with a financial conflict that directly impacts capital markets.

“For all its military and economic strength, the U.S. has one key weakness: it relies on others to pay its bills via large external deficits,” said George Saravelos, Deutsche Bank’s global head of currency research. “In an environment where the geoeconomic stability of the western alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part.”

While a chunk of U.S. assets is held by public-sector actors — the largest of which being Norway’s $2.1 trillion sovereign wealth fund — the bulk is held by a myriad of private investors. A decent amount of the U.S. securities domiciled in Europe will ultimately be owned by investors from outside the region, too.

What’s more, those investors concerned by overexposure to U.S. assets because of Trump’s policies may have already trimmed their holdings, after his “Liberation Day” tariffs last year fueled the “Sell America” trade. While the greenback is still suffering from that, U.S. Treasuries ended up having their best year since 2020 and U.S. stocks keep breaking fresh records.

“While the rest of the world still holds a huge amount of U.S. stock and bonds, it is fair to assume that there has been a rebalancing of U.S. dollar positions which will protect it from another bout of market jitters,” said Jane Foley, head of currency strategy at Rabobank.

For now, it remains unclear whether European officials would even explore the possibility of pushing the region’s investors to reallocate away from the U.S. ING Groep NV researchers led by Carsten Brzeski noted that while Europe has theoretical leverage thanks to its U.S. holdings, it may need to take a softer approach.

“There is very little the EU could do to force European private sector investors to sell U.S. dollar assets,” Brzeski said. “It could only try to incentivize investments in euro assets.”

(With assistance from Tom Fevrier.)

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