How Europe's 'trade bazooka' could be a last resort against Trump's tariffs

CNBC

4 days ago

The European Union appears to be preparing to deploy its "Anti-Coercion Instrument" — characterized as a "nuclear option" to try to deter trade disputes — as the threat of a 30% tariff on EU imports looms large.
A number of EU member states, including France and Germany, are reportedly considering using "anti-coercion" measures targeting the U.S. if the bloc cannot reach a trade deal with U.S. President Donald Trump, EU diplomats told Reuters this week.
The measures could see the EU restrict U.S. suppliers' access to the EU market, excluding them from participation in public tenders in the bloc, as well as putting export and import restrictions on goods and services, and limits on foreign direct investment in the region.
The time to deploy what's been seen as the EU's "trade bazooka" could be approaching too, as Trump's trade dispute with the bloc comes to a head.
As things stand, the White House says it will impose a 30% tariff on EU imports to the U.S. on Aug.1 if no trade deal is reached before then. It has said the deadline is fixed but noted that trade negotiations could continue after that date.
Relations between the U.S. and EU are at a low ebb after Trump has repeatedly accused the EU of unfair trading practices because it has run a persistent trade surplus when it comes to the exchange of goods.
European Council data shows total trade between the EU and U.S. amounted to 1.68 trillion euros ($1.97 trillion) in 2024 but while the EU ran a trade surplus in goods, it recorded a deficit in services with the U.S. When both goods and services were taken into account, the bloc had a surplus of around 50 billion euros last year.
As Trump's latest 30% tariff threat looms, the EU has been considering its options, including counter-tariffs targeting U.S. imports, as well as its potentially formidable Anti-Coercion Instrument (ACI), which was created in 2023 but has never been used by the EU before.
The ACI is designed to be a deterrent against any perceived "economic coercion" from third-party countries seen to be enacting "coercive" practices designed to change EU policy, and which could harm trade and investment in the bloc.
The primary objective of the ACI is "deterrence," the European Commission states, but "if a third country resorts to coercion," the instrument enables the bloc to respond, "where possible through dialogue and engagement, but also – as necessary – through response measures."
Those responses — whose aim is "always to induce the cessation of the coercion" can go beyond retaliatory counter-tariffs, with the instrument also allowing for import and export restrictions on goods and services, but also on intellectual property rights and foreign direct investment.
Additionally, the anti-coercion measures allow the EU to impose various restrictions on access to the EU market, notably to public procurement, as well as the ability of U.S. suppliers to sell food and chemicals in the bloc.
Use of the instrument could also lead to measures affecting services in which the U.S. has a trade surplus with the EU, according to Reuters, including those from digital services providers Amazon, Microsoft, Netflix or Uber.
The European Commission notes that the EU's response measures must be "proportionate to the harm they counter, and must be targeted and temporary," applying as long as the perceived coercion prevails.
It would also take time for the Commission to act, with the process requiring it to investigate possible cases of coercion before asking member states to confirm its findings. Then, a qualified majority (at least 15 of its 27 states) would be required to be in favor of adopting ACI response measures and even before they were put into action, the Commission would hold talks with the perceived offender to try to resolve the dispute.
CNBC has requested further comment from the European Commission and is awaiting a response.
Last-minute talks to reach a trade deal with the U.S. are taking place, with the EU targeting a 10% baseline tariff deal and the shielding of key industries, such as autos, agriculture, machinery and aerospace.
"While the EU will stomach a 10% baseline tariff with exemptions and quotas that shield major EU industries, a reciprocal rate that is greater than 15% will likely result in some EU retaliation," analysts at Eurasia Group said in a note.
"Trump's threat to triple the rate IS seen as a negotiating tactic and not the landing zone by the EU. That said, the EU will threaten to hit as much as 116 billion euros' worth of U.S. exports with counter-tariffs and utilize additional trade measures — including the bloc's potent Anti-Coercion Instrument (ACI) that could target U.S. service exports — to incentivize the Trump administration toward a deal."
Using the ACI would be something of a "trade bazooka," Eurasia Group's Mujtaba Rahman, Emre Peker and Clayton Allen noted, and a last resort.
"While France, Spain, and some other EU members will advocate for a strong retaliation against Trump's tariffs, the [European] commission is likely to initially focus on hitting U.S. goods with more tariffs," they said.
An escalatory spiral that leads towards Eurasia's 10% 'trade war' scenario, however, would prompt Brussels to deploy escalatory measures, such as "export controls/duties, public procurement curbs, and/or penalties on U.S. services exports" by using the ACI "trade bazooka as a last resort," they concluded.