Explained: ‘Big bazooka’ that EU could use to counter Trump’s tariff threats over Greenland

Tensions between US President Donald Trump and the European Union are increasing over Greenland.

Trump has vowed to take Greenland, which he says is critical to US national security, from its fellow North Atlantic Treaty Organization (Nato) ally Denmark.

Trump has announced 10 per cent tariffs from February 1 on Denmark, Sweden, France, Germany, the Netherlands and Finland, along with Britain and Norway, until the US is allowed to buy Greenland. He has vowed to increase that to 25 per cent from June 1 unless a “total and complete” sale to the US has been completed.

Meanwhile, European nations have vowed to stick together and are mulling hitting the United States equally hard in return. But what is the ‘big bazooka’ the EU could pull out over Trump’s tariff threats? Let’s take a closer look.

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What is the Anti-Coercion Instrument?

Europe’s ‘big bazooka’ is known as the Anti-Coercion Instrument (ACI). It is officially known as Regulation 2023/2675 on the protection of the European Union and its Member States from economic coercion. The idea behind this was to allow the European Union to respond to heavy tariffs or economic blackmail from another nation outside the bloc. The ACI took effect on 27 December 2023.

The EU devised the instrument in the aftermath of a spat between China and Lithuania over Taiwan. This came after Lithuanian firms faced a mountain of paperwork and import barriers from China after the country deepened ties with Taiwan.

It is known as the ‘big bazooka’ or ‘trade bazooka’ because it is one of the most powerful tools at the disposal of the European Union. However, it has never been used in real life – nor could the EU, one suspects, have thought it would be in a position to do so on the United States.

How would it work?

The ACI would theoretically allow the bloc to impose massive trade sanctions on a country that is engaging in economic coercion against any of the EU’s 27 member states. The bloc defines economic coercion as a nation “applying – or threatening to apply – measures affecting trade or investment”, thereby meddling “with the legitimate sovereign choices” of the EU and member states. The instrument allows the EU to determine whether a nation is doing so “on a case-by-case basis.”

The EU would determine this in four steps:

Investigation: The European Commission would investigate, via request or suo moto, whether a country is engaging in economic coercion. The Commission would be required to act quickly and come to a determination as soon as possible, usually within four months.

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Determination: The EU Council then decides whether coercion is occurring. If this is determined, the European Commission then requests the offending nation to stop its action.

Engagement: The European Commission then reaches out to the nation to try to settle the issue. This includes direct negotiations, mediation, arbitration, good offices, and adjudication.

Response measures: However, if no solution is found, the Commission may adopt countermeasures against the nation.

What could the EU do?

For example, the EU could block United States firms from its market comprising 450 million people. The EU could also impose export controls on goods it sends to the United States. It could further end the protection of US intellectual property within the bloc.

The idea is to respond in a proportionate way to the threat from an aggressor nation, while trying to minimise the damage to itself. However, this could hurt European consumers themselves.

Once the issue is solved, the European Commission is empowered to terminate the countermeasures. The European Union can also request reparations for damage caused by economic coercion under international law.

However, under the rules, the EU would need approval from at least 55 per cent of its member nations to deploy the ACI. It would also take several months for the ACI to go into effect.

Will the EU go ahead?

EU sources say that a package of tariffs on $107.7 billion (Rs 9,794.2 billion) of US imports that could automatically kick in on February 6 after a six-month suspension is seemingly favoured as an initial response rather than anti-coercion measures. Support for the latter is “very mixed”, the source added.

However, the ACI has its fair share of supporters, including France and Germany. Germany’s finance minister, Lars Klingbeil, is backing France’s Emmanuel Macron’s position that the bloc should “consider using these measures” if the US does not back down. “Europeans must make clear the limit has been reached,” Klingbeil was quoted as saying by Euronews.

The EU had threatened to do so during previously fraught negotiations with the United States last year. The leader of the liberal Renew group in the European Parliament, Valérie Hayer, has also come out in favour of using the ACI. “The United States is making a miscalculation that is not only dangerous but could be painful,” Renew group’s Hayer said in a statement. “The anti-coercion instrument is our economic nuclear weapon,” she added.

The eight targeted countries, already subject to US tariffs of 10 per cent and 15 per cent, have sent small numbers of military personnel to Greenland, as a row with the United States over the future of Denmark’s vast Arctic island escalates. “Tariff threats undermine transatlantic relations and risk a dangerous downward spiral,” they said in a joint statement published on Sunday, adding they were ready to engage in dialogue, based on principles of sovereignty and territorial integrity.

Danish Prime Minister Mette Frederiksen said in a written statement she was heartened by the consistent messages from the rest of the continent, adding: “Europe will not be blackmailed”. The tariff threat unsettled global markets, with the euro and sterling falling against the dollar and a return to volatility expected.

With inputs from agencies