The cunning counter-move – not sure that the answer will be tariffs

EU

The EU's cunning counter-move in the tariff war: the "EU bazooka"

Ebba Thornéus

Updated 17.01 | Published 16.01

The world is holding its breath waiting for the EU's counter-move to Trump's tariff war.

But perhaps the answer will surprise – the Union has an ace up its sleeve.

- They could resort to the "EU bazooka", says Maria Persson, associate professor of economics at Lund University

Quick version

• The EU is now preparing to take action against US tariffs.
• A weapon in its pocket could be the "EU bazooka", which contains creative measures that could negatively affect American companies.
• However, negotiations with the US are still the first-choice option for the EU, even if the possibilities are currently considered limited due to Trump.

A weapon in its pocket could be the " EU bazooka", which contains creative measures that could negatively affect American companies.
However, negotiations with the US are still the first-choice option for the EU, even if the possibilities are currently considered limited due to Trump.

Today, Monday, EU leaders are meeting in Brussels to discuss their countermeasure in the tariff war.

First on the table is the issue of steel and aluminum tariffs.

There, the EU's trade ministers are expected to go hard against hard.

But when it comes to other goods, Europe may be a little more "creative," says Maria Persson, associate professor of economics at Lund University.

- As soon as we introduce tariffs, we also harm ourselves by raising prices for our own consumers. They therefore want to be able to put pressure on the US without it harming Europe too much. Therefore, it is not certain that there will only be tariffs on trade in goods.

"Various creative solutions"

On these issues, the EU already has a completely ready-made package, the so-called "EU bazooka," which they could use, explains Maria Persson.

– The Anti-Coercion Instrument is a package of various “creative” solutions that can be used if it is judged that other measures are not enough when countries exercise coercion against EU countries.

This could, for example, be an attempt to limit the opportunities for American companies to sell services in Europe, to participate in public procurement or to make direct investments.

Maria Persson, Associate Professor of Economics at Lund University. Photo: Oleksandra Panasenko.

But also not to respect intellectual property rights, such as patents or copyrights.

– Many American companies have brands that are worth a lot of money and this has been a conflict issue for a long time with, for example, China, which they do not think is doing enough to respect this. There, Europe could release control a little more, which would hit the US hard but not ourselves in the same way.

When it comes to the services sector, the EU could, for example, make it more difficult for American companies, such as Facebook and Google, to operate in the European market.

Could make it harder for Facebook

A hypothetical example of such restrictions could be on how much and/or what type of advertising these internet giants are allowed to sell and display to European consumers – which could affect the opportunities to make money in the European market.

– Such a measure could have a direct effect on companies that are politically close to Trump.

However, Maria Persson believes that they will primarily want to try to negotiate.

– So far, they have proceeded cautiously and tried to get the US to negotiate and withdraw the tariffs, but this is, as I said, a conceivable future step that does not require unanimity either, but a qualified majority of the countries is sufficient.

EU Commission Ursula von der Leyen. Photo: Virginia Mayo/AP

US President Donald Trump. Photo: Manuel Balce Ceneta/AP

However, the room for negotiation seems relatively limited right now, she believes.

– My opinion is that right now there is no strong will in the US to negotiate on this as Trump has expressed for decades that he likes tariffs as a tool and that he has wanted to use it for a very long time. This indicates that whatever is done will not bite at the moment because Trump himself wants this.

However, there are some things that could expand the scope for action, or cause the US to withdraw the tariffs themselves.

– What will be decisive is what domestic economic consequences this will have, and whether the Republicans will think this is a good idea in the long term.

“Will be important to follow”

Swedish Foreign Trade Minister Benjamin Dousa. Photo: Viktoria Bank/TT

But how important is  Europe to the US really?

– Europe is one of the largest markets in the world, it cannot be ignored. How we and China respond to these tariffs will be important for the total cost to the US, which will hurt itself the most through this.

What will happen next?

– It is very difficult to say. But what makes it a little easier is that the US has introduced a common tariff level for the whole of Europe. Otherwise, they could have used an opportunity to create discord between the countries, which makes it a little easier.

Maria Persson points out, however, that she will keep an eye on whether the EU will now also start to restrict trade with the rest of the world.

– When the whole world faces increased tariffs for exporting to the US, a lot of goods that would normally have been shipped to the US will now not. Many countries will therefore try to export to the EU instead. Although this is fundamentally something positive, there may be political concern that it could be a challenge for domestic producers. Then they may want to limit imports from the rest of the world as well.

– I think that will be very important to follow.