Trump is threatening sanctions on Germany over its Russian gas pipeline, opening a new front in the trade war that the Kremlin calls 'blackmail'

Matthias Schrader (Associated Press)

President Trump and German Chancellor Angela Merkel.

• President Donald Trump has ramped up pressure on Germany to scrap the Nord Stream 2 pipeline from Russia and boost its defence spending.
• Trump threatened to impose sanctions and shift 2,000 troops out of Germany if it doesn't comply.
• "It's not a giant leap to see Trump weaponizing trade to achieve this ambition," said Neil Wilson, chief market analyst for Markets.com.
• View Markets Insider's homepage for more stories.

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President Donald Trump has ramped up pressure on Germany to scrap a gas pipeline from Russia and boost its defense spending, threatening to impose sanctions on the European ally and move American troops elsewhere if it doesn't comply.

"We're looking at it," Trump told reporters at the White House on Wednesday, referring to potential sanctions if the Nord Stream 2 pipeline goes ahead. "It really makes Germany a hostage of Russia if things ever happened that were bad."

Rising tensions between the US and Germany also risk opening a new front in the trade war.

US lawmakers fear the pipeline would tighten Russia's grip on European energy, bolstering its clout on the continent and allowing it to cut off gas supplies currently transported through Ukraine. Members of Congress have drafted a bill that would target sanctions at vessels placing the pipeline and the companies insuring it, and deny visas to executives tied to the ships and block them from making US-based transactions, according to Bloomberg.

The Trump administration is also considering shifting as many as 2,000 US troops from Germany to Poland, as Berlin only spent 1.2% of its GDP on defense in 2018, below its 2% commitment as a NATO member, according to Bloomberg.

"We're protecting Germany from Russia, and Russia is getting billions and billions of dollars in money from Germany," Trump said.

The Kremlin responded by accusing Trump of engaging in "nothing other than blackmail and a form of unfair competition," according to Bloomberg.

"Germany's view is: Russian energy is cheap and nobody tells it what to do in the 'liberal world order,'" said Michael Every, a senior market strategist at RaboResearch. "The US view is: you can't rely on gas from Russia, and be scared of it, and demand US protection from it, and not pay 2% of GDP for your own defence."

"Washington would prefer 2% of GDP spent on US arms and purchases of US gas (albeit at higher prices)," he added.

Given Trump's threat of tariffs against Mexico to pressure them into reducing illegal crossings at the southern border, "It's not a giant leap to see Trump weaponizing trade to achieve this ambition," said Neil Wilson, chief market analyst for Markets.com.