The European Parliament has suspended the approval of a key US trade deal agreed in July in protest against Donald Trump’s demand to take over Greenland.

The suspension was announced in Strasbourg, France, on Wednesday, as the US president addressed the World Economic Forum in Davos.

The move followed renewed trade tensions between the US and Europe sparked by Trump’s bid to acquire Greenland, which had rattled financial markets, reviving talk of a trade war and the possibility of retaliation against the US.

Hours later, Trump said on social media he had reached a “framework” deal on Greenland’s future and would not carry out threats to put new tariffs on eight Nato members.

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 most 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 on the continent expected to boost US exports.

The deal would have still required approval from the European Parliament to become official.

But on Wednesday, days after Trump threatened fresh US tariffs over Greenland, Bernd Lange, chair of the European Parliament’s International Trade Committee, said it was “left with no alternative but to suspend work on the two Turnberry legislative proposals”.

He said work to implement the trade plans would be on hold “until the US decides to re-engage on a path of cooperation rather than confrontation, and before any further steps are taken”.

The move renewed the possibility that the EU might move forward with tariffs on a possible €93bn ($109bn, £81bn) worth of American goods it announced last year in response to Trump’s “Liberation Day” tariffs.

It had put those plans on hold while the trade deal was being finalised but those levies would now come into force on 7 February unless the bloc moves to extend the pause or approves the new deal.

Lange, speaking before Trump announced the “framework deal” and backed off the tariff threat, said there would be “no possibility for compromise” until Trump’s threats ended.

He also raised the prospect of the use of the “anti-coercion instrument” of retaliatory measures, nicknamed a “trade bazooka”, an idea also backed by French President Emmanuel Macron.

In an interview with the BBC after Trump’s announcement, Lange declined to say whether it could salvage the trade deal, adding that it would take “some time” to understand its implications.

“We have to look what this so-called solution would mean,” he said.

There seems to be a sense in Brussels that Trump’s climbdown was inevitable. When BBC News asked one well placed EU source for a response to President Trump saying he wouldn’t go ahead with the tariffs, the response was simply an eye-rolling emoji.

Over the last year, financial markets have batted away concerns over the impact of the US president’s policy announcements, taking comfort in the TACO acronym, Trump Always Chickens Out.

It seems the sense of him not following through on threats has also taken hold in some corridors of power.

In his Davos speech, Trump repeated his interest in the US acquiring Greenland from Denmark, but said “I don’t have to use force, I don’t want to use force, I won’t use force”.

He called for “immediate negotiations” with the country about how he could take over the island, which he has argued is crucial for US and global security, announcing the “framework” of a future deal a few hours later.

Trump’s speech helped to calm financial markets on both sides of the Atlantic, which had sunk in previous days.

Shares in the US gained further on the deal announcement, with the Dow Jones, S&P 500 and the Nasdaq, rising more than 1% in afternoon trading on Wednesday, while the FTSE 100 closed slightly higher.

The price of gold continued to make gains as it rose above $4,842 (£3,604) an ounce for the first time. The price of silver remained slightly lower than Monday’s record high of $95 an ounce, hovering around $94.

Precious metals are seen as safer assets to hold in times of uncertainty, and the prices of both gold and silver have soared over the past year.

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.”

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

But ahead of Trump’s arrival in Davos, US Treasury Secretary Scott Bessent said European leaders should not jump to retaliate, urging them to “have an open mind”.

“I tell everyone, sit back. Take a deep breath. Do not retaliate,” he said.

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.