The European Parliament is planning to suspend approval of the US tariffs deal agreed in July, according to sources close to its international trade committee.

The suspension is set to be announced in Strasbourg, France on Wednesday.

The move would mark another escalation in tensions between the US and Europe, as Donald Trump ratchets up his efforts to acquire Greenland, threatening new tariffs over the issue on the weekend.

The stand-off has rattled financial markets, reviving talk of a trade war and the possibility of retaliation against the US for its trade measures.

Shares on both sides of the Atlantic were lower on Tuesday, with European stock markets seeing a second day of losses. In the US, the Dow Jones was down 1.3% in midday trading, while the S&P 500 dropped 1.5% and the Nasdaq was 1.7% lower.

On the currency markets, the US dollar also fell sharply. The euro climbed 0.7% against the dollar to $1.1731 while the pound rose by 0.2% to $1.346.

Borrowing costs also rippled higher around the world, as the biggest sell-off of long-term government debt in months drove up yields on 30-year bonds in markets including the US, UK and Germany.

Trade tensions between the US and Europe had eased since the two sides struck a deal at Trump’s Turnberry golf course in Scotland in July.

That agreement set US levies on European goods at 15%, down from the 30% Trump had initially threatened as part of his “Liberation Day” wave of tariffs in April. In exchange, Europe had agreed to invest in the US and make changes at on the continent expected to boost US exports.

The deal still needs approval from the European Parliament to become official.

But on Saturday, within hours of Trump’s threat of US tariffs over Greenland, Manfred Weber, an influential German member of European Parliament, said “approval is not possible at this stage”.

The EU had put on hold plans to retaliate against the US tariffs with its own package targeting €93bn ($109bn, £81bn) worth of American goods while the two sides finalised the details.

But that reprieve ends on 6 February, meaning EU levies will come into force on 7 February unless the bloc moves for an extension or approves the new deal.

French Prime Minister Emmanuel Macron was among those urging the EU to consider its retaliatory options, including the anti-coercion instrument, nicknamed a “trade bazooka”.

Washington’s “endless accumulation” of new tariffs is “fundamentally unacceptable, even more so when they are used as leverage against territorial sovereignty,” he said in a speech at the World Economic Forum in Davos.

Also speaking in Davos, US Treasury Secretary Scott Bessent reiterated his warning to European leaders against retaliation, urging them to “have an open mind”.

“I tell everyone, sit back. Take a deep breath. Do not retaliate. The president will be here tomorrow, and he will get his message across,” he said.

Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer warned that the US would not let retaliation go without response.

“What I’ve found is that when countries follow my advice, they tend to do okay. When they don’t, crazy things happen,” Greer said, in remarks reported by the Agence France-Presse.

The US has previously expressed impatience with European progress toward approval of the deal amid ongoing disagreements over tech and metals tariffs.

The US and the 27-nation European Union are each others’ single biggest trade partners, with more than €1.6tn ($1.9tn, £1.4tn) in goods and services exchanged in 2024, according to European figures. That represents nearly a third of all global trade.

When Trump started announcing tariffs last year, it prompted threats of retaliation from many political leaders, including in Europe.

In the end, however, many, opted to negotiate instead.

Only China and Canada stuck by their threats to hit American goods with tariffs, with Canada quietly withdrawing most of those measures in September, concerned they were damaging the Canadian economy.

In a speech in Davos on Tuesday, Canadian Prime Minister Mark Carney urged “middle powers” to unite to push back against the might-makes-right world of great power rivalry that he warned was emerging.

“When we only negotiate bilaterally with a hegemon, we negotiate from weakness. We accept what is offered. We compete with each other to be the most accommodating,” he warned. “This is not sovereignty. It is the performance of sovereignty while accepting subordination.”

Looming in the background of the trade tensions is a pending Supreme Court decision over whether many of the tariffs Trump announced last year are legal.