Meanwhile, the European Union (EU) is weighing whether to intervene. As discussed in our recent blog post, they are considering activating their new “Anti-Coercion Instrument” (ACI) as a counter-measure to the proposed 30% tariff on imports from the US. This instrument has become popularly known as a “nuclear option” in trade disputes. It further empowers the EU to impose technical barriers to market access, especially against U.S. suppliers in industries such as food, chemicals, and services.
The ACI will be an invaluable instrument to the EU in countering coercive trade practices. It gives the bloc a legal basis to introduce punitive measures like export controls, anti-dumping duties and restrictions on access to public procurement. American companies will face significant barriers to entry for U.S. companies to sell their goods and services in the European market. This untenable situation has created grave concerns for U.S. exporters and their shippers.
U.S. President Donald Trump has very much taken this type of negotiation tactic under his wing, with a twist—threatening 25% tariffs. This builds the groundwork for a possible national activation. The EU are calling these moves an attempt to preemptively shape the US-EU trade discussion. They are especially motivated to get a baseline tariff agreement of at least 10% in those final negotiations. Key industries, including autos, agriculture, machinery, and aerospace, are central to these discussions, with the EU aiming to protect them from undue economic pressure.
To implement ACI response measures, the European Commission must first engage in talks with the United States to resolve any disputes amicably. That’s until the European Commission along with at least 15 of the EU’s 27 member states agree to such far-reaching measures. Only then can they be adopted.
“If a third country resorts to coercion,” – European Commission
The potential consequences of deploying the ACI could extend beyond traditional goods and impact services where the United States maintains a trade surplus with the EU. Major digital service providers such as Amazon, Microsoft, Netflix, and Uber should soon find themselves facing new prohibitions. These constraints would severely limit their ability to operate in the European market.
Mujtaba Rahman, Emre Peker, and Clayton Allen at Eurasia Group pitched in that EU member states like France and Spain will likely support retaliatory measures of great severity on Trump’s tariffs. Instead of triggering the ACI immediately, the European Commission will likely decide to initially apply further tariffs on U.S. products.
“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,” – Mujtaba Rahman, Emre Peker and Clayton Allen (Eurasia Group)
The ACI’s use is intentionally limited to “deprive the repeat offender of the effects of coercion,” the European Commission stated. This goes to show again how the EU would much rather tackle trade disputes through discussion and cooperation, rather than take the adversarial route and punish first.
“Where possible through dialogue and engagement, [but also – as necessary – through response measures],” – European Commission
The EU has accused the U.S. of unfair practices and there’s been significant tension between the two combined with the imminent threat of a 30 percent tariff. Both sides are still very much in the weeds of difficult trade talks. At the same time, U.S. businesses are deeply worried about the ACI being deployed, and what that would mean for their presence in Europe.