With the looming threat of higher tariffs from the US and diminishing hopes of a deal, the European Union is considering all its options, including its ‘nuclear’ option, which can block service companies and halt access to European public tenders.
The harshest measures, under the Anti-Coercion Instrument (ACI), are considered a last resort and require a qualified majority of 15 countries, representing a total of 65% of the EU population, to be approved. However, more member states are considering the possibility, with Germany shifting its support to ACI. France, on the other hand, has so far been wary of turning to this option. US President Donald Trump, after announcing the latest round of tariffs, said that he will retaliate against anyone taking action against the US.
Currently, the European Commission is negotiating on behalf of the bloc with the Trump Administration. After the first threat of sanctions, negotiations were moving towards a deal involving a 10% tariff on a wide range of trade exports with exceptions. However, Trump backtracked, and he is now threatening the EU with 30% tariffs by 1 August.
According to diplomatic sources cited by Reuters, EU Trade Commissioner Maroš Šefčovič spoke in sober tones about the current state of negotiations. In his view, the 30% tariffs currently threatened would “practically prohibit” trade between the EU and the US.
The main issue seems to be that there is no common vision from US counterparts, and it is unclear what Trump will support. According to one diplomat, Šefčovič received very diverging options from the US, and in any case, none that would lower or outright revoke the current status quo: the 50% tariff on US steel and aluminium and the 25% on cars and car parts. The US also rejected a standstill promise for further tariffs after a deal is reached.
The current difficulties and uncertainties are leading EU countries to change their stance in favour of a stronger reaction from the bloc. That’s where the idea of using the ACI started to float. The system was set up mainly to deal with China. It could allow the EU to hit US services. In this trade area, the EU has its main trade deficit with the US, and could limit access to European financial service markets and public tenders. In addition, ACI can impose restrictions on investments and sales of chemicals and food, as well as limits on the protection of intellectual property rights.
Before resorting to this heavier option, the EU has one package of tariffs against the US that is worth around €21 billion, targeting specific US goods. The package is currently suspended until 6 August. Finally, the EU can decide on further tariffs that could target €72 billion worth of US exports in the bloc.
