European nations are reportedly pondering retaliatory tariffs and wider punitive economic actions against the U.S. after President Donald Trump threatened new export duties, exacerbating tensions over Greenland.
Trump indicated on Saturday that eight European nations would encounter rising tariffs, starting at 10% on February 1 and escalating to 25% by June 1, unless an agreement is reached permitting Washington to obtain Greenland, the mineral-rich territory that is a semi-autonomous region of Denmark.
The suggested tariffs would impact Denmark, Norway, Sweden, France, Germany, the U.K, the Netherlands, and Finland. These charges would be in addition to existing export tariffs to the U.S., which currently stand at 10% for the U.K. and 15% for the EU.
Diplomats from the region convened an emergency meeting in Brussels on Sunday afternoon to deliberate their response to Trump’s threat to heighten tariffs, with France reportedly advocating for the EU to utilize its most formidable economic counter-threat to the U.S., known as the “Anti-Coercion Instrument” (ACI).
This much-discussed instrument is viewed as a last resort in terms of economic counter-measures as it could lead to the EU limiting U.S. suppliers’ access to the EU market, preventing them from engaging in public tenders in the bloc, along with imposing export and import restrictions on products and services, and constraints on foreign direct investment in the area.
Although regarded as a “big bazooka” against Trump’s tariff tactics, it has never been employed before, and regional leaders have asserted their intention to seek dialogue with the U.S. in the upcoming days to settle the dispute over Greenland.
The Financial Times reported that the EU was contemplating levying tariffs amounting to 93 billion euros ($108 billion), while also considering the utilization of the ACI. Meanwhile, Reuters indicated that the European Parliament is likely to now suspend its activities on the EU-U.S. trade agreement reached last July.
The assembly was scheduled to vote on the removal of numerous EU import tariffs on U.S. goods on January 26-27, but that approval could now be postponed, Reuters reported.
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While France is more enthusiastic about the ACI, Germany is one of the nations that have generally opted against using it previously.
“The essential question to monitor is whether the EU will attempt to keep the conflict limited to a more “traditional” trade war, or if demands for a stricter approach gain traction,” Carsten Nickel, deputy director of Research at Teneo, said in emailed remarks.
“Supporting the latter viewpoint, France has urged its partners to formally trigger the EU’s so-called anti-coercion instrument … [but] other EU member states, including Germany, are likely to remain cautious.”
The factors contributing to this divide are complex, Nickel observed, including elements such as France historically advocating for a more autonomous European stance in continental security, and it being less reliant on exports than other countries like Germany.
Months of negotiations ahead?
European leaders swiftly reacted to Trump’s unexpected tariff warning, with U.K. Prime Minister Keir Starmer stating on Saturday that “imposing tariffs on allies who ensure NATO collective security is entirely erroneous,” while French President Emmanuel Macron termed them “unacceptable.”
Nevertheless, leaders are anticipated to utilize the World Economic Forum taking place in Davos, Switzerland, this week, as a chance to converse with Trump, who will be presenting at the forum on Wednesday.
Economists caution that, much like last year when lengthy negotiations took place before a trade agreement was reached between the U.S. and EU, this spring is likely to be dominated by similarly complicated discussions regarding Greenland.
“My base expectation is that the February 1 [tariffs] deadline will be postponed as diplomatic efforts are made,” Mohit Kumar, chief European economist at Jefferies, stated to CNBC on Monday.
“However, I believe this situation differs from the usual TACO [Trump Always Chickens Out] trade. Regarding Greenland, Europe’s stance is quite evident: it is not for sale, and they will not tolerate hostility … But Trump has demonstrated that he desires Greenland. I cannot envision how this issue will be resolved quickly. Thus, we are facing months, or possibly quarters, of uncertainty regarding tariffs.”
“This is detrimental for Europe. Growth will be hampered,” he warned, preceding what could be a tumultuous market day for European stocks on Monday, with regional indexes appearing poised to fall at the open.
