How could Europe respond to Trump’s tariffs threat?

Donald Trump’s threat on Saturday to impose tariffs on eight European countries if they do not support his plan to buy Greenland had a shocking effect.

The US president said that he will impose a 10 percent tax on imports to the US on February 1, and if a deal is not made, this rate will rise to 25 percent from the summer. It is unclear whether these tariffs will be added to existing taxes.

France and Germany, which are in the group of eight including England, Denmark, Norway, Sweden, the Netherlands and Finland, said that the European Union (EU) should be ready to take action if Trump implements taxes.

So what options does Europe have to respond to the US?

Less than six months ago, the US and the EU reached a deal that is expected to stabilize transatlantic trade and provide certainty to businesses and consumers.

European Commission President Ursula von der Leyen arrived from President Trump’s golf course in Scotland to impose a 15 percent tariff on everything the EU sells to the US; This is much better than the 30 percent tax America is threatening.

Meanwhile, Brussels has also prepared a tariff package that will come into force if an agreement is not reached with the USA.

The tariff included tariffs on everything from livestock to aircraft parts and whisky, totaling €93bn (£80bn; $108bn) worth of goods the US sold to the EU.

The high-level deal meant those tariffs were suspended while the details were worked out and the European Parliament was set to approve the EU-US trade deal next week.

But a few hours after Trump’s threat, influential German lawmaker Manfred Weber said approval was “not possible at this stage.”

Tariffs on billions of euros worth of American goods will start on February 7 before the EU signs last year’s agreement and extends the suspension.

This risks a political backlash against Trump in the US for companies exporting to Europe.

Regarding the threat of tariffs against some, but not all, EU countries, the Commission said this was technically possible but would be very difficult to implement given the number of times goods cross EU borders before being exported to the US.

European Commission spokesman Olof Gill said Brussels would “do whatever is necessary to protect the EU’s economic interests” but ultimately tariffs would only serve to harm businesses and consumers on both sides of the Atlantic.

The so-called “trade bazooka”, officially known as the Anti-Coercion Instrument (ACI), is a law that allows the European Union to respond to economic blackmail from non-EU countries.

It threatens them with dire consequences if they attempt to impose their will on the EU or its members.

It specifically targets trade and investment measures of countries deemed to interfere with the “legitimate, sovereign choices” of the EU or its member states.

This response could include a wide range of trade measures, such as tariffs, import and export restrictions, restrictions on trade in services, as well as restricting access to banking and capital markets.

Ultimately, it allows the EU to block access to most of the single market by ignoring existing international agreements.

But this is the nuclear option.

The main purpose of the bazooka is to bring other countries to the negotiating table. In fact, its deployment could cause serious economic damage within the EU itself, so this is seen more as a last resort.

It is also not a quick response measure.

Under current rules, the European Commission can spend up to four months investigating any allegation of coercion. Another six months could be spent negotiating with the country concerned and deciding whether there is a case for retaliation.

EU member states will then have up to 10 weeks to authorize any action.

So even if the commission pulls the trigger now, it could be a year before the bazooka is fired.

Prime Minister Sir Keir Starmer has made clear he wants to avoid a trade war with Trump and has more or less ruled out immediate retaliatory tariffs against the US. a speech on monday.

While Sir Keir said Trump should not have used the threat of trade tariffs “against allies” in this way, he also said: “A tariff war is in no one’s interests.”

He continued: “We haven’t gotten to that stage and so my focus is to make sure we don’t get to that stage.”

There are other tools available to the government if the UK, EU and US cannot reach an agreement on Greenland.

The UK, for example, could increase its Digital Services Tax, which could potentially impact some of the biggest US tech companies, such as Amazon and Meta, which owns Instagram, WhatsApp and Facebook.

The tax rate is currently 2% and is levied against tech giants with sales of £500 million globally and £25 million in the UK.

But many things are unclear at this stage, including the legality of some Trump tariffs.

The US Supreme Court will decide whether the president overstepped his authority by imposing taxes using the International Emergency Economic Powers Act.

This includes so-called “retaliatory” tariffs that Trump introduced last year, under which American businesses importing a range of British goods must pay a 10% duty when they arrive on US shores.