Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The EU is planning to hit Silicon Valley with retaliatory measures if President Donald Trump follows through on threats to impose tariffs on the bloc, in the first use of a Brussels “bazooka” that could drag services into a trade war.
The European Commission is looking to use its “anti-coercion instrument” in a potential dispute with Washington, said two officials with knowledge of the plans, which would allow the EU to target US service industries such as Big Tech.
An official said “all options are on the table” and pointed to the ACI as the toughest response available without breaching international law.
The tool, which was drawn up during Trump’s first term and subsequently used as a deterrent against China, allows the EU’s executive arm to impose restrictions on trade in services if it determines that a country is using tariffs on goods to force changes in policy.
Trump’s threat to use tariffs to coerce Denmark to hand over Greenland and to press the EU to drop enforcement action against US technology companies would qualify, officials said.
Dubbed a “bazooka” by some EU officials when it came into force in 2023, the ACI allows the bloc to select from a wide range of retaliatory measures, such as revoking the protection of intellectual property rights or their commercial exploitation, for example, software downloads and streaming services.
It also allows the EU to block foreign direct investment or restrict market access for banking, insurance and other financial services groups.
A second official cautioned that while the EU was proficient in handling tariffs on goods, it could still balk at expanding a dispute into new areas including services and intellectual property rights.
Trump last week said he would “absolutely” levy tariffs on the EU, citing Brussels’ action against US tech companies and its large trade deficit in goods. He has not given details about when the measures would be adopted or whether the bloc could negotiate a reprieve, as Canada and Mexico have secured.
EU trade ministers met on Tuesday in Warsaw to discuss the US president’s threats. Officials briefed on the closed-door discussions said the majority expressed support for punitive action if necessary.
Trade commissioner Maroš Šefčovič said he wanted to negotiate a way to avoid tariffs but added: “If we are hit, we will react firmly.”
Šefčovič noted the bloc had a large deficit with the US in services even though it enjoyed a surplus in goods.
Some member states are wary of fighting a trade war when economic growth is so weak. “We want to de-escalate,” said an EU diplomat with knowledge of the discussions.
Any retaliation would have to be proportionate and the commission would have to provide evidence of damage to EU industries. It must also seek approval from at least 15 of the 27 member states. Consultations can take several weeks; the last retaliatory tariffs imposed on the US in 2018 took three months to adopt.
By contrast, Canada and Mexico announced retaliatory measures last week within hours of Washington’s decision to levy tariffs of up to 25 per cent.
Trump subsequently suspended tariffs on both countries, ostensibly in return for commitments to crack down on migrants and drug trafficking.
Laurent Saint-Martin, France’s trade minister, told the Financial Times that despite the ACI, the EU might need faster retaliatory measures. “Speed is one of the key issues, we have to be ready faster than last time. We have to be more united and faster.”
In March 2018 Trump imposed tariffs of 25 per cent on steel and 10 per cent on aluminium. The EU took three months to approve its retaliatory measures on €2.8bn of US goods.
An EU diplomat said the bloc could move fast in a crisis, adding: “Look at our response to the Russian invasion of Ukraine or the Covid pandemic.”
Read the full article here
