Meanwhile, the European Union (EU) is preparing to respond to U.S. economic coercion themselves. They intend to achieve this primarily through the adoption of their Anti-Coercion Instrument (ACI). This law, designed to combat economic blackmail from non-EU countries, could play a pivotal role in addressing escalating trade tensions, particularly in light of recent threats from the U.S. administration.
The ACI—nicknamed the EU’s “trade bazooka”—gives the EU the tools it needs to respond to countries that introduce illegal tariffs. That’s what makes this tool so crucial to protecting European interests from overbroad and harmful restrictions. In response, Brussels has developed their own set of retaliatory tariffs. These tariffs will only be implemented in the absence of a successful negotiated agreement with the U.S. The main source of this urgency to act is U.S. President Donald Trump. He currently has a proposal on the table to implement a 10% import tariff on February 1, escalating to 25% later in July if no agreement is made.
In the face of these threats, France, Germany, and several other European nations—including the UK, Denmark, Norway, Sweden, the Netherlands, and Finland—have formed a coalition advocating for a united EU response. This group aims to ensure that the EU is prepared to act decisively if the U.S. proceeds with its proposed tariffs.
The consequences of such a state of affairs pose far more than an obstacle to conventional trade deals. The UK government is considering increasing its Digital Services Tax (DST), currently set at 2%, which targets large tech companies with global sales exceeding £500 million and UK sales above £25 million. This move could further complicate relations with U.S. tech giants, as it would represent an additional layer of taxation on American companies operating within the UK.
As negotiations continue, Labour Leader Sir Keir Starmer stresses the need to avoid a U.S. trade war at all costs. He argues that a war would be disastrous for all parties, perhaps especially China.
“A tariff war is in nobody’s interests.” – Sir Keir Starmer
The backdrop to these developments is a recently established agreement between the U.S. and the EU aimed at stabilizing transatlantic trade. Yet less than six months ago, that same bi-partisan caucus negotiated a compromise that was meant to deliver long term certainty for both business and consumer. With the renewed threat of tariffs, serious questions are raised about the durability of this agreement. It creates further opportunity for escalation in ongoing and future trade disputes.
The ACI represents a proactive stance by the EU in facing external economic pressures, allowing it to respond swiftly should negotiations falter. If activated today, the ACI could still require as much as a year to be fully operational. This scenario underscores the importance, urgency and complexity of today’s international trade relations.
Prohibitive negotiations between the EU and the U.S. continue. Even with these preliminary agreements, it remains to be seen whether they will reach a compromise that would prevent them from imposing punitive tariffs. The stakes are enormous, holding potentially profound implications for the future direction of international trade’s growth and economic prosperity on both countries’ home fronts.