Europe’s Trade Response to Trump Tariffs
EU Weighs “Trade Bazooka” Amidst Looming US Tariff Threats
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The European Union is preparing a robust response to potential U.S. trade tariffs, wiht its powerful Anti-Coercion Instrument (ACI) being described as a “trade bazooka” that would be deployed as a last resort. As last-minute trade talks with the U.S. continue, the EU is aiming for a baseline tariff deal of 10% and the protection of key industries, including autos, agriculture, machinery, and aerospace.
EU’s Anti-Coercion Instrument: A Measured but Potent response
The European Commission has outlined that any EU response measures must be “proportionate to the harm they counter, and must be targeted and temporary,” remaining in effect only provided that the perceived coercion persists. The process for activating the ACI is intentional, requiring the Commission to investigate alleged coercion, seek confirmation from member states, and engage in talks with the perceived offender to seek a resolution before any measures are implemented. A qualified majority of at least 15 out of the 27 member states would need to approve the adoption of ACI response measures.
Trade Negotiations: A Delicate Balancing Act
Analysts at Eurasia Group suggest that while the EU is prepared to accept a 10% baseline tariff with exemptions and quotas for its major industries, a reciprocal rate exceeding 15% would likely trigger EU retaliation.They view president Trump’s threat to triple tariffs as a negotiating tactic rather than a final position. In response, the EU is prepared to counter-tariff up to 116 billion euros of U.S. exports and utilize additional trade measures, including the ACI targeting U.S. service exports,to encourage a favorable deal.
“trade Bazooka” as a last Resort
Eurasia Group’s Mujtaba Rahman, emre Peker, and Clayton Allen characterize the ACI as a “trade bazooka,” emphasizing its role as a final option. While some EU members, such as France and Spain, may advocate for strong retaliation against U.S. tariffs, the Commission is expected to initially focus on imposing tariffs on U.S. goods. Though, in the event of an escalating trade war, leading to a scenario of 10% tariffs, Brussels would consider more stringent measures. These could include export controls, duties, public procurement curbs, and penalties on U.S. services exports, with the ACI serving as the ultimate deterrent.
CNBC has reached out to the european Commission for further comment and is awaiting a response.