The economics behind US interest in Greenland
In this analysis, Dr Radek Stefanski, Senior Lecturer in Economics, looks past the politics to examine the trade-offs between resource efficiency and alliance cohesion.
During his Davos address this week, President Trump reiterated his assertion that Greenland should come under the United States of America’s control, presenting the issue as one of national and global security. European leaders dismissed the proposal, citing concerns related to sovereignty and international law.
While this response clarifies what is unlikely to occur, it raises a more challenging question: why does this proposal keep re-emerging?
From an economic perspective, Greenland represents a striking case of global misallocation. The island boasts significant deposits of rare earth elements and critical minerals. Yet much of this wealth remains untouched, not because it lacks value but because Greenland operates in a highly capital-constrained and regulated environment.
Greenland’s problem is not that it owns the wrong asset, but that it lacks the scale to develop it. The fixed costs of extraction—ports, power, specialised labour—require a level of investment and risk-bearing that a small economy cannot supply. Furthermore, recent regulatory shifts, such as the ban on uranium mining, have effectively stranded vast rare earth deposits.The USA, by contrast, brings the capital and institutional capacity to absorb that risk. Viewed narrowly, transferring control from a capital-poor owner to a capital-rich one would correct this inefficiency and turn an idle asset into a productive contributor to the world economy.
Many of the usual objections don’t quite fit. In Greenland’s case, concerns about Dutch Disease, where a resource boom pushes up the currency and weakens other sectors, matter far less. Its potential output would be tiny compared with the size of the USA economy, so it would not distort exchange rates. Instead, reliable access to critical minerals would lower costs and reduce supply chain risk.
Crucially, this is not just about manufacturing; it is about the rate of future innovation. AI promises to act as a ‘research multiplier,’ accelerating the creation of new ideas, from drug discovery to green energy. But this digital intelligence relies on physical hardware, and that hardware depends on a narrow set of minerals, components and processing capacity. If these inputs remain scarce, they act as a bottleneck on our computational capacity. Securing them isn’t just about building widgets; it is about unblocking the ‘idea machine’ that generates future economic growth.
Greenland’s small population also changes the calculus. With fewer than 60,000 residents and integration into the US legal and market framework, a resource boom would likely make Greenlanders wealthy stakeholders rather than victims of the instability often seen in mining regions.
A strategic logic also sits behind the idea. China currently dominates the global rare earth processing chain. Monopolies restrict supply and raise prices, which acts as a tax on innovation. Bringing new supply into the Western sphere would improve resilience and benefit the global economy as a whole.
This kind of trade-off features prominently in Davos conversations. Leaders weigh efficiency against cohesion, and short-term advantage against long-run growth.
Greenland’s location adds another layer. As Arctic ice melts, new shipping routes open in a region with little governance. A US-controlled Greenland would effectively provide a global public good: security in a new trade corridor. This lowers insurance premiums and transaction costs for everyone. This helps explain why the administration frames its argument as a security issue.
But this is where the economic logic begins to break down.
The remarks in Davos have already sharpened tensions with European allies, notably Denmark. To a growth economist, this is the critical error. The West’s most valuable asset is not its minerals, but its integrated network of ideas.
Innovation relies on scale. Trade, research collaboration and the cross-border flow of data all depend on the stability of the network. Fracturing the Western alliance reduces the effective size of the ‘Western brain’, and the compounding cost of slower idea diffusion outweighs any one-off efficiency gain.
There is also a strategic irony. While Russia and China might lose access to Greenland’s resources, they would gain something potentially more valuable: a divided West. A public rupture between allies over territory acts as a subsidy to our rivals.
Which leaves us with an uncomfortable conclusion. The economic logic behind the interest in Greenland is not irrational. It correctly identifies a resource misallocation. The danger lies in the trade-off.
But if the constraint is chiefly capital and capability, the cleaner economic answer is not a change of flag but a change of financing: long-term investment partnerships, infrastructure funding, and purchase agreements that let Greenland keep sovereignty while attracting the scale and risk-bearing it lacks. If those arrangements are feasible, they capture most of the gains without the political shock.
Davos exists to debate such costs. The Greenland question exposes one of the most important: the USA is prioritising a one-off gain in resources while risking the dynamic flow of ideas. In the long run, the network can outweigh any single mine.