Pressure is growing on European leaders to deploy its trade bazooka against the United States after President Donald Trump threatened fresh tariffs if Denmark does not agree to sell the territory of Greenland. In a scenario of coercion, the EU counts with a powerful tool in the anti-coertion instrument, and calls are intensifying for Brussels to trigger it.
But how does it work? Euronews explains:
What is the anti-coercion tool?
Adopted in 2023, the tool was designed with the US and China in mind as the world’s two biggest economies become more assertive in pushing their national interests through tariffs and the weaponisation of natural resources.
Under the existing legislation, economic coercion exists when a third country “applies or threatens to apply measures affecting trade or investment in order to prevent or obtain the cessation, modification or adoption of a particular act by the European Union or a member state.”
President Trump is threatening tariffs from February 1 ranging from 10% to 25% if Denmark does not agree to sell Greenland by June. On paper, it looks like coercion.
Why is the anti-coercion tool seen as bazooka?
Last year, the EU mulled different options of possible retaliation as the US threatened to hammer the bloc with tariffs on Liberation Day.
Brussels drew up a list of American items that would be hit, affecting states mostly ran by Republican governors, in a tit-for-that move. At the peak of transatlantic tensions, the EU said it would target €93 billion worth of goods including bourbon, airplane components which would have dented Boeing, soybeans and poultry among other items.
Ultimately, the EU decided not to retaliate and took a deal which tripled tariffs on the bloc to 15% while cutting duties to zero on American industrial goods. While the deal was seen as imbalanced and unfairly tilted in favour of Washington, the Commission said it had provided clarity and stability for businesses in a difficult geopolitical scenario.
At the time, the idea of using the trade bazooka was only floated, but never seriously considered. That is because the anti-coercion tool was seen as the nuclear option.
The ACI allows the EU to shut off access to the European single market representing 500 million consumers. It limits trade licenses and access to public procurement tenders. For American services, it means the European market would be off the table.
How is coercion established and how long does it take?
The tool is not automatic, and it takes time to implement. For many, the power behind it comes in the form of deterrence. Once the trade bazooka is out, it is clear that the EU means business and is willing to enter a fight with the single market as leverage.
Once the question of coercion is raised, the European Commission has four months to assess the case and the actions of the third country in question, after which EU member states must decide by qualified majority whether to activate the instrument or not.
If that happens, a negotiation phase with the country in question begins.
If talks fail, the EU can deploy a broad range of countermeasures beyond tariffs.
The tool covers services, investments and access to public procurement. It also allows for steps such as excluding foreign companies from EU tenders or partially suspending the protection of intellectual property rights. The implications are such, that any response under the ACI must be “proportionate and not exceed the level of injury to the European Union”.
What are the implications for the EU?
There are many second-round effects. The first one stems from the fact that the ACI has never been used. Member states have often talked about it, but don’t really know what kind of implications it could bring about on political and geoeconomic terms.
This is why countries from Germany to Italy have repeatedly cautioned against deploying it too quickly or without a good legal case behind it. Berlin and Rome were two of the member states most in favour of cutting a deal with the US last year.
Last year, even as the US threatened to punitive tariffs on the bloc, the EU also feared that deploying such strong measures against the US could backfire and damage the transatlantic relation. The EU still hopes to keep Washington engaged in the continent’s security through NATO and discussions around Ukraine’s peace settlement.
Beyond the US, the EU also considered triggering the ACI after China began weaponising the export licensing of rare earth and critical minerals – vital for Europe’s tech and defence industries – at the end of last year. Ultimately, the EU opted for dialogue.
So, what happens next?
The EU could decide this time around President Trump has crossed the line and gather a qualified majority to trigger the anti-coercion instrument. European leaders have said they will not be “blackmailed” and expressed full solidarity for Denmark and Greenland.
If they go ahead, that will likely mean a new trade war and fresh escalation, but it may be the price to pay for the European Union to defend the sovereignty of a member state.
Unlike the EU-US deal signed last year where a compromise was deemed possible, Copenhagen has repeatedly said there is no room for negotiation when it comes to transferring the sovereignty of Greenland and has rejected any possibility of a sale.
The EU could go back to the retaliatory tariffs it drew up last year and – this time around – implement them hoping the impact on US companies and consumers ahead of the midterm elections where Republicans risk losing control of the House of Representatives and the Senate prompts Trump to change course.
One thing is clear, if the tariffs on Denmark and its allies go into effect on February 1, the European Union and the United States will enter a new trade war.