European Union (EU) leaders are under pressure to respond after US President Donald Trump last week threatened to increase import tariffs on 8 countries over the Greenland issue. These nations include Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland.

In addition to imposing import tariffs on US goods, Europe has its own tool to counter trade threats, a plan prepared last year. This is the anti-coercion instrument (ACI), also known as the "trade bazooka".

Adopted in 2023, this tool was designed as the US and China, the world's two largest economies, increasingly assert national interests through import tariffs and the weaponization of natural resources. Economic coercion is defined when a third country "applies or threatens to apply measures affecting trade or investment, aiming to compel the European Union or a member state to cease, modify, or adopt a specific action".

Last week, President Trump stated he would impose import tariffs on 8 European countries from February until a deal to purchase Greenland, Denmark's autonomous island, is reached. In theory, this could be considered an act of coercion.

European and EU leaders at the summit in Paris, France on 17/2/2025. Photo: AFP

Last year, the EU considered various retaliation options when the US threatened to sharply increase tariffs on the bloc in April. Brussels then compiled a list of US goods that could be targeted, primarily products from states led by Republican governors. When tensions peaked, the EU announced it would impose tariffs on 93 billion euro worth of goods, including bourbon, aircraft components, soybeans, poultry, and other items.

However, the bloc ultimately decided against retaliation and accepted a trade agreement with the US. Under this agreement, tariffs on the bloc's goods increased threefold to 15%, while tariffs on US industrial goods dropped to 0%. Although the agreement was deemed imbalanced and favored Washington, the European Commission (EC) believed it provided clarity and stability for businesses amidst a challenging geopolitical landscape.

At that time, the idea of using the "trade bazooka" was only mentioned and never seriously considered. The reason is that this anti-coercion tool is also seen as a nuclear option.

The ACI allows the EU to cut access to the European single market, which currently serves 500 million consumers. This tool can restrict trade licenses and the ability to participate in government procurement tenders. This means the European market would be closed to US service providers.

However, the ACI is not automatically activated and requires time to deploy. For many, its true power lies in its deterrent capability. Once the "trade bazooka" is launched, the EU sends a clear signal that the bloc is ready for a confrontation, leveraging the European single market.

According to regulations, when a trade coercion issue arises, the European Commission has a maximum of four months to assess the situation and the third country's actions. Subsequently, EU member states vote on whether to activate the tool.

If approved by a majority, a negotiation phase with the third country will begin. If negotiations fail, the EU can implement various retaliatory measures, not limited to import tariffs.

This tool covers areas from services and investment to public procurement access. It also permits measures such as excluding foreign companies from EU tenders or partially suspending intellectual property protection.

However, using the ACI requires careful consideration. The first issue is that the ACI has never been used. Member states frequently discuss this tool, but do not truly know its political and economic consequences.

Therefore, countries from Germany to Italy have repeatedly warned against deploying this tool too quickly or without a solid legal basis. Using strong measures like the ACI against the US could backfire and harm transatlantic relations. Last year, Germany and Italy were also two of the strongest proponents of reaching a trade agreement with the US.

Beyond the US, the EU also considered activating the ACI after China began weaponizing export permits for rare earths and strategic minerals last year. These minerals are essential for Europe's technology and defense industries. However, the EU ultimately chose dialogue.

This time, to use the ACI, EU leaders will need to determine if Trump has crossed a red line and gather a sufficient majority to activate the instrument. They have declared they will not be threatened and expressed solidarity with Denmark and Greenland. Denmark has also repeatedly affirmed it will not negotiate the transfer of Greenland's sovereignty and rejected any possibility of selling the island.

Nevertheless, applying the ACI would likely lead to a new trade war and escalate tensions between the US and the EU, described by the EC as "the world's most integrated economic relationship". In 2024, bilateral trade between the US and the EU reached nearly 2 trillion USD, accounting for almost 30% of global trade and 43% of global GDP. The ACI, therefore, may only be a "last resort" for the EU to address such challenges.