The European Union has several options on paper to respond to US President Donald Trump's imposition of tariffs on eight European countries that sent troops to Greenland amid the US leader's threats to seize control of the island, Politico reports, noting that the retaliatory measures could lead to a new trade war.
Trump announced the imposition of 10% tariffs on Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland, effective February 1. The rate will increase to 25% on June 1. According to the US president, the countries will pay this tariff until an agreement is reached on the acquisition of Greenland.
Politico reports that Brussels may impose tariffs on US exports worth 93 billion euros – a measure adopted last year after Trump's first round of tariffs but then frozen for six months after the EU-US trade deal. The EU tariffs will automatically resume on February 7 unless the European Commission proposes an extension of the moratorium and the bloc's countries support the idea. If the tariffs are imposed by both sides, the EU and the US would find themselves in a trade war, the publication notes.
Another option to limit Trump, which Politico calls “the most powerful weapon” in the EU's arsenal is the "trade bazooka": the EU's Anti-Coercion Instrument (ACI). This mechanism allows for the imposition of additional taxes and fees on technology companies, targeted investment restrictions, limiting or blocking access to the EU market and specific sectors, as well as banning companies from participating in public procurement tenders.
However, this instrument is new and the European Commission will propose its use only if it is confident of the support of a sufficient number of member states, Politico notes. Moreover, in such a case, it would take several months to first resolve the "diplomatic obstacles" between the EC and the Trump administration, the publication writes.
Lithuanian Finance Minister Kristupas Vaitiekunas, in a comment to Politico, called the "trade bazooka" "one of the trump cards". "It's not really the first one on the list that you use," he said.
The EU could also play the "China card," seeking closer ties with China, as Canada has done. But that's not an easy step for Brussels, the paper notes, as European manufacturers could lose out to Chinese competition. "The Chinese outstrip us in every major category of exports and domestic production. We will need more barriers, more managed trade with China“, says trade expert David Klayman.
The US's Achilles heel is its large public debt, with Bloomberg estimating that European public and private companies hold roughly 40% of US foreign bonds.
Politico stresses that Brussels could order its banks and pension funds to get rid of such assets, which would “almost certainly“ trigger a financial crisis. However, this would also hurt Europe, as a massive sell-off would lead to a fall in asset prices and huge losses for creditors, the publication writes. Bloomberg adds that the majority of US government bonds are held in private funds that are not controlled by governments.
For now, the EU's preferred strategy remains restraint. “The priority here is engagement, not escalation and avoiding tariffs. We need to be very smart about how we distinguish between threat and operational reality“, Politico quotes Olof Gill, the European Commission’s deputy high representative.
Furthermore, unlike American companies, European companies are benefiting from the ongoing tariff stalemate, the article notes. As part of the trade deal, the US reduced the tariff rate on the EU to 15%, and the EU is to reduce tariffs on US industrial goods to zero. However, Trump’s threats have thwarted a vote on the issue in the European Parliament.
Overall, maintaining the cohesion within the EU needed to retaliate is a challenge due to the US president’s actions, in particular the imposition of tariffs only on certain countries.
EU leaders are expected to discuss the action plan at an extraordinary meeting on January 22. According to Poiltico, it is unlikely to result in a “brilliant plan of attack“, but rather likely to discuss whether the EU should impose tariffs on American goods or use a “trade bazooka“.