Greenland standoff rattles markets

0:01Good morning from the Financial Times. Today is Wednesday, January 21stay. And this is your FT News Briefing. The rising risk of an all-out trade war between the U.S. and Europe is rattling global markets. We explore what financial leverage America's allies could use to push back. Plus, China is selling vital weapons components to both Ukraine and Russia. But experts are convinced Russian buyers actually have an advantage. I'm Victoria Craig, and here's the news you need to start your day.

0:41U.S. President Donald Trump is pushing ahead on his plan to take over Greenland, and during a press briefing yesterday, he did not rule out using military force. How far are you willing to go to acquire Greenland? You'll find out. It's a desire that's put him on a collision course with America's NATO allies. That's because he's threatened a fresh round of 10 % tariffs if they do not fall in line within the next roughly two weeks. I think that we will work something out where NATO is going to be very happy and where we're going to be very happy. But we need it for security purposes. The threat of a trade war has been met with fierce opposition and strong market reaction.

1:22The S &P 500 dipped more than 2 % yesterday, while the dollar fell 0.9 % against the euro. Meanwhile, Europe's Stock 600 Index shed 0.7%, while the yield on the benchmark 10-year U.S. Treasury note hit its highest level since September. Some investors have floated one idea for how to push back against the Trump administration. Europe could leverage its massive investment in U.S. Treasuries to convince the president to change his mind on Greenland. Here to explain this idea is Robin Wigglesworth. He's the editor of AlphaVille, the FT's financial blog. So, Robin, I know this is not your base case, but just humor me for a second.

1:59What is the argument behind this idea? Well, the uncomfortable fact for America is that it's borrowed north of$30 trillion, a lot of it from foreigners, and it's borrowing well over a trillion dollars a year. It's also its stock market has become increasingly dependent on overseas money. Essentially, the U.S. is dependent on inflows of money from the rest of the world, a lot of it from Europe. And can you just walk us through who exactly owns treasuries? When we talk about Europeans could sell treasuries, who exactly are we talking about? Well, most of the treasuries are held by American banks, American pension plans, endowments, hedge funds, and so on.

2:41But a lot of it, maybe well over a third, is held abroad. European NATO countries alone own around$2.8 trillion worth of treasuries. If Europe was desperate for leverage against the United States, it is at least conceivable that they might aggressively try to sell that down. And if they did that, even the threat would have a catastrophic impact on the bond market. The dollar should drop a lot. And it is hoped very quickly forced a change of mind in the Trump administration. OK, so that's the argument for dumping treasuries. But you're not buying it. Why? This leverage is more theoretical than real.

3:25First of all, this money is not held by European governments. It's held by thousands of individual European investors. You'd need to compel them to sell. And if you did that, first of all, it would take a long time. It'd be immensely disruptive. And in the meantime, treasury prices would crash. Now, that's bad for the United States. But frankly, it's bad for the entire world, given how treasuries is kind of this bedrock for the entire global financial system. An overlooked factor here is that if Europe does repatriate trillions of dollars from the United States, well, that's going to push the dollar down and the euro up.

4:04Because Europe is so dependent on exports itself, well, that's almost certainly going to cause almost instant recessions in many European countries. So it would be exceptionally painful. So in the end, does Europe actually have any financial leverage over the United States when it comes to making some grand statement like we're talking about here with treasuries? Well, any sort of grand statement would be painful, but it does have leverage. You know, you could whisper into the ear of some of the big public pension plans and say, maybe you should maybe not sell America, but maybe diversify away.

4:41Just Europe buying less treasuries would be quite painful for the United States. Then there are sanctions you could put on trade. Essentially, an extremist even banned some U.S. companies or tech companies in Europe. There are many things they could do. The question is, like, how much pain are they willing to risk? And, you know, also the backlash from the Trump administration could be quite significant. Plenty to keep our eyes on. Robin Wigglesworth is the FT's Alphaville blog editor. Thanks, Robin, for your perspective. Thanks for having me on.

5:17Netflix reported quarterly earnings yesterday and used it as an opportunity to build a case for its$83 billion bid for Warner Brothers. Trump said in December that Netflix's, quote, very big market share could pose a problem for the deal, which needs regulatory approval. The combination of Warner's HBO Max service and Netflix would put the company over the 30 percent U.S. market share threshold. But Netflix said the industry remains, quote, intensely competitive and is expected to argue that other streaming services like YouTube should be considered as part of the marketplace. As for Netflix's actual fourth quarter earnings figures, its net income was slightly ahead of what Wall Street expected.

5:59The company also said its 2025 operating margin was hit by expenses related to its Warner Brothers bid, which totaled$275 million. Netflix shares dropped in after-hours trading.

6:17Russia's war with Ukraine will hit the four-year mark next month, and in that time, drones have become one of the most important weapons. Both sides have worked to bolster domestic production of their devices, and they've used mostly the same Chinese component makers to do it. Charles Clover is the FT's defense and security correspondent. He joins me now. Hi, Charles. Hi, Victoria. So just walk us through this careful choreography that these Chinese companies have been doing to cater to both sides of this war. Well, the Chinese try and pretend that they're not selling to both sides and that their components are not winding up killing people in a war zone.

6:57So when the Ukrainian teams go to a Chinese factory, they will spend a few hours and then they'll sort of be hustled out. And then right after them, a Russian car will drive in to the same factory and a Russian team will go and inspect the same wares and make an order. And then they're in the same WeChat group chats with these Chinese suppliers bidding for the same parts. It's a very sort of strange situation. It kind of reminds me of the movie Casablanca, where the Germans and the French and the Americans are all in the same bar and they're all talking to each other and pretending that the war is something far away.

7:36A delicate diplomatic dance, it sounds like, at play there. It sure is. But Charles, how does this work legally? Because officially, China has banned exports of this technology to both Russia and Ukraine. Yeah, well, that's exactly right. China has banned the direct export of drone components and drones to both Russia and Ukraine. But there are workarounds. So instead of ordering a drone component, an order of motors or cameras to be shipped directly to Ukraine, a Ukrainian company would set up an offshore company in Hong Kong or Poland and order the components. And the Chinese suppliers would ship them wherever they're asked.

8:16And as long as they don't have full knowledge, they may suspect, obviously, but they don't have full knowledge of who they're shipping to, they're narrowly within the law. So Ukraine and Russia are both buying the same components, but is each side getting the same sort of quality equipment, or is one gaining an advantage over the other? Well, the Ukrainian government charges, and some Western officials also charge, that the Chinese government is kind of silently weighing in on the side of Russia. So Russia has been able to buy entire manufacturing lines and transplant them along with, apparently, Chinese managers to run these things.

8:54So this makes it much easier for Russia to mass produce the latest technology than having to buy it directly from China each time in batches. The Chinese state has apparently, according to some sanctions documentation and also just according to some Western officials we interviewed, helped with the settlement mechanisms used by Russia to pay for the Chinese equipment because the Russian companies would be in violation of U.S. and European sanctions. So rather than buying these components with dollars, they use the various settlement mechanisms to allow them to pay. And that is quietly supported by elements of the Chinese state.

9:43Is it possible really to source these components from other places, or is China really the dominant player in this industry? It is possible, and Ukraine is making a very good effort to localize production of drones. And that's one of the reasons that Russia is localizing production and buying manufacturing lines from China. But the problem is that it's not that Chinese technology is necessarily better, though in some cases it is, or it's at least equal to Western technology. It's just it's so much cheaper. It's very hard to replace that channel of industrial production with something else. Fascinating stuff.

10:18Charles Clover is the FT's defense and security correspondent. Thanks so much for breaking this down for us, Charles. Thank you, Victoria. Great to be here. You can read more on all of these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.