Donald Trump’s threat on Saturday to impose tariffs on eight European countries unless they support his plan to buy Greenland came as a shock.
The US president said he would introduce a 10% levy on imports into the US on 1 February, rising to 25% from the summer if no deal is done. It is unclear whether these tariffs would be added to existing levies.
France and Germany – part of the group of eight which includes the UK, Denmark, Norway, Sweden, the Netherlands and Finland – have said the European Union (EU) should be ready to act if Trump goes ahead with the taxes.
But what options does Europe have to respond to the US?
Could Europe hit back with tariffs?
Less than six months ago, the US and the EU agreed a deal that was supposed to stabilise transatlantic trade and provide certainty to businesses and consumers.
European Commission President Ursula von der Leyen came away from President Trump’s golf course in Scotland with tariffs of 15% on everything the EU sells to the US – far better than the 30% America had threatened.
Along the way, Brussels also prepared a package of tariffs that would come into force if it was unable to reach an agreement with the US.
It included tariffs on everything from livestock to aircraft parts to whiskey, totalling €93bn (£80bn; $108bn) worth of goods that the US sells to the EU.
The high-level agreement meant those taxes were suspended while details were worked out, and the European Parliament was set to ratify the EU-US trade deal next week.
But within hours of Trump’s threat, influential German MEP Manfred Weber said approval was “not possible at this stage”.
Without the EU signing off on last year’s deal or extending the suspension, the tariffs on billions of euros worth of American goods will kick in on 7 February.
That risks a political backlash in the US for Trump from companies that export to Europe.
As for his threats of tariffs on some but not all EU countries, the commission said while it was technically possible, it would be very difficult to implement given the number of times goods cross EU borders before they are exported to the US.
European Commission spokesperson Olof Gill said Brussels would do “everything necessary to protect EU economic interests” – but ultimately, tariffs would only serve to harm businesses and consumers on both sides of the Atlantic.
What is the EU’s ‘trade bazooka’?
The so-called “trade bazooka”, officially known as the Anti-Coercion Instrument (ACI), is a law that allows the European Union to respond to economic blackmail from non-EU countries.
It threatens very severe consequences if they attempt to impose their will on the EU or its members.
Specifically, it targets trade and investment measures by countries who are seen to interfere in the “legitimate, sovereign choices” of the EU or its member states.
This response can include a vast swathe of trade measures such as tariffs, import and export restrictions, curbs on trade in services as well as reduced access to banking and capital markets.
Ultimately, it allows the EU to block access to most of the single market while ignoring existing international treaties.
However, this is the nuclear option.
The real purpose of the bazooka is to bring other countries to the negotiating table. Actually deploying it could cause serious economic damage within the EU itself, so it is seen very much as a last resort.
It is also not a rapid response measure.
Under the current rules, the European Commission can spend up to four months investigating any alleged coercion. Another six months can be spent negotiating with the country concerned and deciding whether there is a case for retaliation.
Then, the EU’s member states have up to 10 weeks to authorise any action.
So even if the commission were to pull the trigger now, it could be a year before the bazooka is actually fired.
What about the UK?
Prime Minister Sir Keir Starmer has made it clear he wants to avoid a trade war with Trump, more or less ruling out immediate retaliatory tariffs against the US in a speech on Monday.
While he said Trump should not be using the threat of trade taxes “against allies in this way”, Sir Keir also said: “A tariff war is in nobody’s interests.”
He continued: “We have not got to that stage and my focus therefore is making sure that we don’t get to that stage.”
There are other levers the government could use if the UK, the EU and the US are unable to reach an accord over Greenland.
The UK could, for example, increase the Digital Services Tax, potentially affecting some of the US’s largest tech companies like Amazon and Meta, the owner of Instagram, WhatsApp and Facebook.
The tax rate is currently 2% and is charged against tech giants with sales of £500m worldwide and £25m in the UK.
But at this stage, so much is unclear including the legality of some Trump tariffs.
The US Supreme Court is set to rule on whether the president overstepped his authority by imposing taxes using the International Emergency Economic Powers Act.
That includes the so-called “retaliatory” tariffs Trump introduced last year under which American businesses importing a range of British goods have to pay a 10% tax when they reach US shores.
Sources: BBC News
