US Commerce Secretary Howard Lutnick warns EU retaliation could trigger a tit-for-tat tariff escalation
Lutnick projects over 5% US GDP growth, calls high interest rates the main economic constraint
IMF upgrades near-term US growth outlook but flags risks from rising trade tensions
US Commerce Secretary Howard Lutnick on Tuesday cautioned the 27-member European Union that retaliating against US actions over President Donald Trump’s push for control of Greenland could spiral into a ‘tit-for-tat’ escalation between Washington and the bloc.
Speaking at the annual World Economic Forum summit in Davos, Lutnick’s comments came ahead of Trump’s scheduled meeting at the summit on Wednesday.
1 January 2026
Get the latest issue of Outlook Business
Lutnick reaffirmed that he expects the US economy to grow by over 5% in the first quarter of 2026, stating that high interest rates are the main constraint preventing even faster expansion. “Our rates should be much lower so that our economy can finally flourish. I think we’re going to grow more than 5% GDP this quarter, and that’s for the $30 trillion US economy,” Lutnick said.
He added that monetary policy, rather than structural weakness, is the key restraint holding back growth, arguing that if interest rates were lower, the US economy could reach 6% growth.
Lutnick’s comments signal growing pressure on the US Federal Reserve to cut interest rates aggressively. The policy outcome of the Federal Open Market Committee’s next meeting is due on January 28.
His remarks are also more optimistic than those of US Treasury Secretary Scott Bessent, who expects US real GDP growth of between 4% and 5% this year.
The International Monetary Fund on Monday upwardly revised its projections for US real GDP growth by 0.3 percentage points from its October forecast. According to IMF estimates, the US economy is expected to expand by 2.4% in 2026, citing continued investment in artificial intelligence.
The IMF maintains a benign tariff outlook but cautioned that the outlook could quickly deteriorate if trade tensions escalate. The revision comes amid increasing tensions over control of Greenland, with Trump warning that Washington will impose tariffs on countries that resist a US takeover of the island.
Lutnick warned that if EU allies choose to retaliate, “then we’ll be back to tit-for-tat” tariff escalation. “If we’re going to have a kerfuffle, so be it. But we know where it’s going to end. It’s going to end in a reasonable manner,” he added, expressing confidence that the current friction would mirror earlier tariff disputes followed by negotiations.
