Trade-bazooka: How EU retaliation could hit US tech giants

American President Donald Trump issued a stark ultimatum to Denmark: sell Greenland by June or face punitive tariffs ranging from 10 to 25% from February. As a response to this call, which is seen in Europe as an attack on the sovereignty of a state, French President Emmanuel Macron announced he would propose to European leaders the EU’s Anti-Coercion Instrument (ACI)--also known as the ‘trade bazooka’. Should this measure be enforced, there could be relevant repercussions for the tech world. 

What is the trade bazooka? 

The ACI is a tool that could allow the bloc to retaliate. The trade bazooka, adopted in late 2023, was designed specifically for this type of scenario, where a foreign power weaponizes trade to dictate European policy. The instrument grants the European Commission extensive powers to retaliate without requiring the unanimous consent of all 27 member states. Instead, it relies on a qualified majority vote, preventing a single hesitant nation from vetoing action. 

The instrument provides a framework for the EU to respond, including procedures for examination, determination, engagement, and potential response measures. The European Commission has four months to assess a potential case of economic coercion. Following the Commission's proposal, the Council has 8-10 weeks to determine if economic coercion exists. 

How could the tech sector be affected? 

If the Council confirms coercion exists, the EU enters a brief negotiation phase. If those talks fail, the Commission can unleash a broad spectrum of countermeasures. These are not limited to tit-for-tat tariffs on goods. The ACI allows the EU to restrict access to foreign direct investment, block trade in services, and exclude foreign companies from public procurement tenders.

The exclusion from public procurement is one of the most potent tools. Under ACI countermeasures, US cloud providers could be legally barred from bidding on government contracts for hospitals, schools, and administrative infrastructure. Furthermore, the instrument allows for restrictions on data flows and digital services. 

If Brussels restricts the validity of US service licenses, a European-based subsidiary—as is the case with Meta and Google’s subsidiaries in Dublin—could find itself legally unable to sell its parent company’s software to clients in Paris or Berlin. This would effectively fragment the Single Market for American firms, negating the primary advantage of their Irish operations.

Ongoing discussions on the application of the trade bazooka

European leaders, who are set to gather at the Davos Economic Forum in Switzerland, where Trump will also be, are discussing how to respond to the US move. Greenland is a self-governing territory of Denmark, and President Trump’s renewed demand to purchase has shifted from rhetoric to economic aggression. 

Activating the ACI requires a qualified majority vote in the Council of the European Union, meaning at least 15 of the 27 member countries, representing at least 65% of the European population, must vote in favor. 

Earlier today, German Finance Minister and Vice Chancellor Lars Klingbeil told reporters that the EU should prepare its trade bazooka to strike back if Trump’s tariff threats come into reality. Yet, Germany has often been reluctant to take these far-reaching measures, given the great dependence of its economy. 

Italy, one of the largest countries by population, might also be wary of the ACI's application. Last year, alongside Berlin, Rome also pushed to cut a deal with the US, rather than retaliate. Still, Italian Prime Minister Giorgia Meloni called Trump’s potential new tariffs on the EU a “mistake”.

The future at stake

After months of tension, it has become clear on the Brussels side that the alliance between the European Union and the United States is no longer as strong as it once was. The coming decisions will tell much about the future of the EU. Not only in terms of its geopolitical collocation, but also in terms of strategic autonomy.