protectionism

he European Union is preparing to respond with a suite of retaliatory measures under its Anti-Coercion Instrument (ACI) following U.S. President Donald Trump’s threat to impose a 30% tariff on EU goods from 1 August.

The measures—described by some diplomats as the EU’s “nuclear option”—could target U.S. services, investment, and access to the European market across several sectors, if negotiations fail to defuse the transatlantic trade dispute.

President Trump’s threat, issued on Saturday, also includes tariffs on Mexican goods. EU diplomats say that member states, led by Germany, are increasingly supportive of invoking the ACI, an unprecedented move designed to counter economic pressure from third countries seeking to influence EU policy decisions.

The ACI entered into force at the end of 2023 but has yet to be activated. It was created to offer the bloc a legal and strategic framework to resist coercive trade tactics, having been prompted by earlier episodes involving both the United States and China. European concerns grew during Trump’s first term, and later intensified following China’s actions against Lithuania in 2021 after it allowed Taiwan to open a representative office in Vilnius.

Broad Scope of Possible EU Response

The ACI provides a ten-point menu of potential countermeasures, going well beyond conventional tariffs. These include:

• Tariffs and Quotas: New import duties could be introduced, and quotas or licensing restrictions placed on selected U.S. goods entering the EU market.

• Public Procurement Restrictions: U.S. companies bidding on public tenders in the EU—worth around €2 trillion annually—could be penalised. This may include exclusion from contracts where U.S. content exceeds 50%, or applying disadvantageous score adjustments during the bidding process.

• Digital Services: American firms such as Amazon, Microsoft, Netflix, and Uber may face regulatory or market access restrictions. These firms represent sectors where the U.S. maintains a trade surplus with the EU.

• Investment Curbs: Measures could also be taken to restrict U.S. foreign direct investment. The United States is the largest external investor in the EU, meaning restrictions would have broad-reaching implications.

• Intellectual Property and Regulatory Barriers: Access to intellectual property protections, financial services markets, and regulatory approvals for food and chemical sales may also be reconsidered for U.S. firms.

The ACI stipulates that response measures should be proportionate and designed to either halt the coercive behaviour or compensate for damages caused. This enables the EU to tailor its response based on which actions would be most effective in practice.

Implementation Procedure

Although the process laid out by the ACI is structured and time-bound, it is not immediate. Once a potential coercive action is identified—such as Trump’s proposed tariffs—the European Commission has up to four months to investigate and determine whether coercion has occurred.

If the Commission reaches such a conclusion, it must then submit its findings to the Council. A qualified majority of EU member states is required to support the Commission’s assessment before countermeasures can be adopted. This is a higher threshold than typically applies to trade policy decisions, potentially slowing down the bloc’s ability to act swiftly.

If approved, the Commission must attempt to engage diplomatically with the third country. Should this fail, concrete countermeasures could be implemented within six months of the original finding, and take effect within three months of formal adoption. The entire process could extend over the course of a year, though provisions exist for accelerated proceedings in urgent cases.

Strategic Implications

The threatened U.S. tariffs come at a time of growing strain in EU-U.S. relations, particularly on trade and industrial policy. Trump’s renewed focus on protectionist economic measures has revived memories of earlier trade frictions between Brussels and Washington during his first term.

EU officials hope the mere existence of the ACI may be sufficient to encourage negotiations and avert escalation. However, some diplomats privately suggest that preparations for its use are now at an advanced stage, in part to signal Brussels’ readiness to defend its economic interests.

The Commission has not yet confirmed whether the formal process under the ACI has been triggered, and diplomatic engagements with U.S. trade representatives are ongoing. Nonetheless, officials in Berlin, Paris and Brussels have voiced support for firm action if Washington proceeds with tariff implementation.

Given the volume of U.S.-EU trade—valued at over €1 trillion annually—the potential economic fallout from such a dispute would be significant. EU retaliation against American tech and services firms would also touch sectors that have, to date, remained largely outside previous tariff battles.