EU Prepares Anti-Coercion Instrument to Counter 30% US Tariffs

The European Union is reportedly preparing to deploy its "anti-coercion instrument" (ACI) as a last resort to counter the impending 30% tariffs on its exports to the United States. This move comes as a response to the escalating trade tensions between the EU and the Trump administration, which has threatened to impose significant tariffs on a range of European goods.

Several EU member states, including Germany, have expressed support for taking retaliatory measures against the U.S. if a trade agreement cannot be reached. These measures could include restricting U.S. suppliers' access to the EU market, excluding them from public procurement, imposing import and export restrictions on goods and services, and limiting foreign direct investment in the EU.

The ACI, established in 2023, has not been used before but is designed to counter any "economic coercion" by third countries. Economic coercion refers to actions taken by third countries to change EU policies, which may harm EU trade and investment. The EU Commission has stated that the primary goal of the ACI is to deter such behavior, but if coercion occurs, the EU will respond through dialogue and, if necessary, retaliatory measures.

These retaliatory measures could go beyond reciprocal tariffs and include restrictions on the import and export of goods and services, as well as limitations on intellectual property and foreign direct investment. The EU Commission emphasizes that any countermeasures must be proportionate to the perceived harm and targeted, remaining in effect as long as the coercive behavior continues.

The EU's process for implementing the ACI involves investigating potential cases of coercion, confirming the findings with member states, and obtaining qualified majority support from at least 15 of the 27 member states. Even before implementing the measures, the EU Commission will engage in talks with the perceived coercive party to resolve the dispute.

The EU is currently in the final stages of negotiations with the U.S. to reach a trade agreement, aiming for a baseline tariff of 10% while protecting key industries such as automobiles, agriculture, machinery, and aerospace. Analysts suggest that while the EU might accept a 10% baseline tariff with exemptions and quotas to safeguard its major industries, it could resort to retaliatory measures if the reciprocal tariffs exceed 15%.

The EU views the Trump administration's threat to triple tariffs as a negotiating tactic rather than a final outcome. In response, the EU is prepared to impose retaliatory tariffs on up to 116 billion euros worth of U.S. exports and utilize other trade measures, including the powerful ACI, to pressure the Trump administration into reaching an agreement.

Analysts from the Eurasia Group describe the ACI as a "trade rocket launcher," a last-resort measure. While some EU member states like France and Spain may advocate for strong retaliation against Trump's tariffs, the EU Commission is likely to initially focus on imposing additional tariffs on U.S. goods. If the situation deteriorates into a full-blown trade war, the EU may resort to more aggressive measures such as export controls, public procurement restrictions, and penalties on U.S. service exports, with the ACI serving as the ultimate deterrent.