What are Trump’s latest tariff threats and could the EU hit back with its ‘big bazooka’? | Trump tariffs

What is Trump threatening?

Over the weekend the president said that a 10% tariff would apply on all goods shipped to the US from Denmark, Norway, Sweden, the UK, France, Germany, the Netherlands and Finland from 1 February unless they allow him to seize Greenland.

Trump said that if a deal is not reached for the “complete and total purchase” of the Arctic island from Denmark, the rate would be increased to 25% on 1 June.

In response, EU leaders have threatened to deploy the bloc’s anti-coercion instrument (ACI) – widely known as the “big bazooka” – which was devised to give the EU more powerful tools to respond to political bullying and trade blackmail from another country.

What is the big bazooka?

The ACI came into force in 2023 and was originally inspired by China’s treatment of Lithuania, whose companies faced a barrage of paperwork and import blocks from Beijing after the Baltic nation deepened ties with Taiwan. The EU devised the deterrent in response to such situations, but never imagined it might apply to the US.

The instrument allows the EU to impose sweeping trade sanctions, such as excluding the aggressor’s companies from its internal market, imposing export controls or ending intellectual property protections. The countermeasures are meant to be proportionate to the economic harm inflicted, while minimising pain to Europe.

In theory, the EU could take aim at anything from US tech and crypto companies, to aircraft makers or agricultural goods. But European consumers could balk at extra costs or restrictions on US companies, such as Apple or Netflix.

Will the EU pull the trigger?

France, long the bazooka’s biggest champion, has urged European allies to consider deploying it if Trump goes ahead with his Greenland tariffs. Germany’s finance minister, Lars Klingbeil, agreed with suggestions from the French president, Emmanuel Macron, that the EU should “consider using these measures”.

Germany’s chancellor Friedrich Merz, however, struck a more conciliatory tone than his deputy, citing Germany’s heavier dependence on exports. He added that experience showed that Trump was open to persuasion.

Countries with a strong emphasis on free trade, such as Ireland and the Netherlands, or those led by politicians with a close relationship to Trump, such as Italy, have been reluctant to consider such measures in the past. For now, most member states put the accent on dialogue with the US.

A crisis meeting of EU senior diplomats on Sunday showed no majority for using the ACI now. Europeans are waiting to see whether this is another Taco moment, referring to the abbreviation for “Trump always chickens out” that describes how the US president U-turns on his tariff threats in response to market jitters.

Brussels officials are also awaiting the US supreme court ruling on the legality of Trump’s tariffs, which could come as early as Tuesday. The EU, has always stressed it sees the ACI as a deterrent, will not take pre-emptive action until Trump’s tariffs become a reality.

How rapidly would measures take effect?

Firing the bazooka is neither quick nor easy and has never been done before, so no one knows how quick or effective it might be.

The European Commission could spend up to four months judging whether coercion was taking place and member states would then have another eight to 10 weeks to endorse (or not) the decision. Any retaliation would require a weighted majority of member states and a further round of last-ditch negotiations.

Alternatively the EU could opt for less drastic but speedier retaliation – reactivating levies on €93bn (£81bn) of US goods, including bourbon, aircraft and soya beans, that were drawn up in response to earlier tariff threats. These countermeasures were suspended after last summer’s EU-US trade deal, but that temporary pause lapses on 6 February, meaning tariffs would apply the following day.

Who stands to lose most from any trade war?

The combined value US imports from the nations Trump is targeting amounted to more than $365bn (£272bn) last year – equivalent to roughly half of the EU exports to the US. Germany sold the most, at more than $160bn, followed by the UK at $68bn, and France at $60bn.

Goldman Sachs estimates that a 10% tariff would lower real GDP in the affected European countries by between 01.% and 0.2% via lower exports. The biggest hit would be for Germany, worth up to 0.3% if implemented as a blanket tariff on all goods. For the eurozone as a whole, the implied hit would be worth about 0.1%, with a similar-sized blow to the UK.

The US would not, however, escape consequences. Additional border taxes on US imports would be paid by US businesses and consumers – hitting activity and investment, and possibly stoking inflation.

The International Monetary Fund chief economist, Pierre-Olivier Gourinchas, warned that a tit-for-tat trade war could drag down global output by about 0.3%. “We all know there are no winners in a trade war and that’s the thing to remember,” he said.

Could a full-blown trade war be averted?

Experts are hopeful that the supreme court rule will against Trump. His latest announcement would be void and he would be forced to seek alternative routes, which could take time. Or he may be persuaded by market pressure or threats of EU retaliation to once again Taco on his tariffs.

The president is also not as popular domestically as a year ago, while most Americans care little about Greenland – with a CNN poll last Friday finding 75% of the population oppose annexation – raising hopes of the US Congress blocking his ambitions there.

Still, Trump’s latest threats also go beyond the normal playbook in blackmailing traditional allies for political ends. “The risk is that Trump has backed himself into a corner,” said Kallum Pickering, chief economist at Peel Hunt. “Having made clear he wants US ownership of Greenland, anything less than that could look like a loss for him.”

How might the fallout be contained?

Economists point out that last year’s trade battles over Trump’s “reciprocal” tariffs unveiled on 2 April had a relatively muted impact compared with the worst-case scenario outcomes. Despite the tensions, the IMF upgraded its forecasts on Monday to anticipate global growth in 2025 and 2026 would be higher than it had estimated before Trump even came to power.

Last year businesses adapted to the global trade war by front-loading their US shipments to US customers in a race to beat tariff deadlines. The IMF has suggested that companies cushioned some of the cost for consumers by taking a hit to profits.

Trade volumes were also buoyed up by companies rerouting exports elsewhere around the world. The global investment boom in artificial intelligence also boosted exporters, as well as the US economy.

However, that capacity will probably be diminished in 2026 because most of the adjustment mechanisms have already been deployed. Even before the latest escalation in tensions, the IMF said it forecast US inflation to rise in 2026 as a consequence.

Economists warn the tensions could sap business investment, hit consumer confidence, and trigger a sell-off in financial markets. Amid record equity prices and fears of AI mania fuelling a market bubble, a correction could rapidly turn into a crash.