LUXEMBOURG — The European Union is negotiating with a trade bazooka in its hand, but can’t agree on whether to pull the trigger just yet.
Beyond a carefully-crafted message of a “proportional” and “united” response from all of the bloc’s trade ministers at their meeting in Luxembourg on Monday, the key question of how to respond to Donald Trump’s trade broadside threatens to open cracks in the bloc’s fragile cohesion.
European Commission President Ursula von der Leyen, speaking in Brussels just as the trade ministerial was wrapping up, made it clear that the EU wants first to negotiate. The EU was offering a “zero-for-zero” tariff scheme on industrial goods, she said, covering autos, drugs, chemicals, plastics and machinery among other things.
That’s the carrot. (And it’s a fairly easy carrot to dangle as transatlantic industrial tariffs have traditionally been low.)
When it comes to sticks, the EU wants to create the impression that it is negotiating from a position of strength (while hoping that the financial market turmoil unleashed by Trump’s tariff broadside will sap his fighting spirit). But EU capitals are divided over exactly which one they should use.
The Anti-Coercion Instrument (ACI), a nuclear option which has yet to be deployed in practice, would empower the EU executive to hit U.S. service industries such as tech and banking.
Trump’s tariffs — which would affect €380 billion worth of EU exports — are exactly the kind of economic bullying that the EU had in mind when it designed the ACI.
But just because his “reciprocal” tariff of 20 percent on all EU goods is imminent (along with 25 percent levies on steel, aluminum and autos already in force) that doesn’t mean the 27-nation bloc is ready to activate it. That, as one minister put it, would mean the bloc really is in a trade war.
The Europeans view the arguments justifying Trump’s tariffs as fallacious on the face of them — these include considering value-added taxes, EU tech regulation and phytosanitary standards to be non-tariff barriers. And the formula used to calculate them is equally nonsensical: The EU charges average tariffs on industrial goods, for example, of 1.6 percent.
The final list of countermeasures prepared by the Commission to respond to Trump’s steel and aluminum tariffs, which entered force on March 12, will not fully match their estimated impact of €26 billion on EU exports, Trade Commissioner Maroš Šefčovič said after the talks. That’s less than originally intended after EU countries lobbied to remove items — like Kentucky bourbon — from the original hit list.
Enough is enough
Countries such as France, Germany and Spain have led calls for the bloc not to take any options off the table in dealing with the U.S. president.
“One also has to look closely at [the Anti-Coercion Instrument],” Germany’s outgoing Economy Minister Robert Habeck said on his way into Monday’s meeting. “These are measures that go far beyond customs policy. They have a broad palette. They then include digital services, but have a wide range of instruments, much more than just via a digital tax.”
His Spanish counterpart Carlos Cuerpo agreed.
“The Anti-Coercion Instrument is there for us to use it in case we find it necessary. But again, the message that the EU should just take today is a positive one,” Cuerpo told POLITICO in an interview. “We need to explore the use of all the instruments that are at our disposal. That’s for sure. We should not rule out anything.”
A senior EU diplomat aware of the meeting told POLITICO that when Šefčovič, the EU trade chief, took a straw poll on which tools Brussels should use, only a handful of EU ministers called for all options to be put on the table — including the trade bazooka.
“He wanted, of course, to test the member states’ unity and what instruments that were on the table. Most member states said that we were in favor of countermeasures if we were forced to,” the senior diplomat said. They noted that about 20 percent of countries called for the EU executive to make use of all the tools it had at its disposal, including the anti-coercion instrument.
Specifically, Ireland and Italy — whose pharmaceutical and wine sectors are in the eye of the tariff storm — were more cautious over escalating trade tensions with Trump.
Irish Foreign and Trade Minister Simon Harris expressed particular caution on invoking the ACI or targeting U.S. services.
“I think if you were to get into that space it would be an extraordinary escalation at a time when we must be working for a de-escalation. It is in many ways the nuclear option if you start talking about the use of the Anti-Coercion Instrument and the likes,” said Harris, who flies to Washington on Tuesday.
Italian Foreign Minister Antonio Tajani went as far as floating a delay of the entry into force of the EU’s countermeasures on steel and aluminum — from April 15 to April 30.
More broadly, Italian Prime Minister Giorgia Meloni, one of Europe’s leaders who is closest to Trump, is showing signs of wobbling on a range of issues — from trade to defense — where the bloc is trying to present a united front. She is due to visit Washington next week, Corriera della Sera reported.
No way back
When you put your most powerful trade weapon to the table so early on, it’s hard to take it off again when things turn really sour.
For one, the European Commission is due to take a decision on whether to fine Apple and Meta as soon as this week for violating the EU’s digital competition rules, in what could add fuel to the trade fire between Washington and Brussels.
“At this stage, I wouldn’t go into the precise definitions or the speculation on what kind of instrument we would use or how we would describe the reasoning for the use of this or that instrument,” Šefčovič told reporters during Monday’s closing press conference.
“Our response is very gradual, just reacting to steel and aluminium … It’s kind of stretched over time because we want to create the necessary negotiating space.
“At the same time, until now, despite our efforts and opening, we haven’t seen the real engagement, which would lead to the mutually acceptable solution,” the trade chief added.
Additional reporting by Koen Verhelst, Laura Hülsemann and Ben Munster.
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