by Thomas Moller-Nielsen
Donald Trump may be the oldest president in US history, but his political and trade outlook predates the English language: divide et impera. The EU, however, can capitalise on some powerful ammunition in its trade arsenal.
EU officials are increasingly worried that the self-proclaimed “Tariff Man” and “deal maker” will undermine European unity during his second term by threatening duties on specific member states or, conversely, by granting exemptions from a “universal” 10-20% levy to countries that commit to political concessions or pledge to buy more US oil and gas.
In recent weeks, such fears have been compounded by Trump’s refusal to rule out “economic coercion” to force Denmark to relinquish control of Greenland. Trump repeated the threat on Saturday, claiming that the annexation by the US of the resource-rich Arctic island was necessary “for the protection of the free world.”
Analysts also note that Trump’s inherent disdain for multinational agreements and organisations like the EU significantly increases the likelihood that he will negotiate directly with individual member states – a point underscored by Washington’s withdrawal last week from the World Health Organization and the Paris Climate Accords.
Divide and rule "makes sense as a tactic, and it makes sense in terms of Trump’s outlook on the world,” said Niclas Poitiers, a research fellow at Bruegel.
Europe’s susceptibility to divide-and-rule tactics, however, is further exacerbated by the economic and political paralysis in Germany and France, two of the EU’s main traditional agenda-setters, and the growing political influence of far-right, pro-Trump parties across the EU.
Italy’s Prime Minister Giorgia Meloni was reportedly the only EU leader invited to Trump’s inauguration last Monday and enjoys close personal ties to the US president’s self-declared “best buddy,” tech mogul Elon Musk. Hungarian leader Viktor Orban is also a long-time admirer of the Make America Great Again president and has repeatedly stymied EU support for Ukraine and sanctions on Russia.
“There is a real danger that individual member states are trying to gain concessions and exemptions from Trump at the cost of a stronger, unified European negotiating position,” said Arthur Leichthammer, a policy fellow at the Jacques Delors Centre.
Corroborating this view, Karel Lannoo, chief executive of the Centre for European Policy Studies, said that Trump will “probably be clever enough” to pit EU member states against each other and exploit Europe’s deep security reliance on the US during trade negotiations.
He also warned that Washington’s primary strategic focus is Beijing, not Brussels.
US officials "see Europe as being weak” and act on the premise that whatever policy the US decides to pursue, Europe will continue to need close partnership with it for NATO and for defence purposes.
"But their obsession is China,” Lannoo added.
Strong policy weapons in the EU arsenal?
According to analysts and EU officials, the EU has several legislative weapons in its arsenal to respond to potential US economic coercion.
One such tool is the bloc’s Anti-Coercion Instrument, a device that Poitiers describes as "a very good instrument" and “a mutual defence clause” – “if you attack one country, you attack the Union,” he noted.
Ironically, the ACI was originally developed to help European firms avoid US secondary sanctions after Trump unilaterally withdrew from the Iran nuclear deal during his first term.
The policy tool, which today is widely regarded as a useful weapon to combat Chinese economic blackmail, could be invoked if Trump attempts to impose duties on a specific member state, EU officials say, provided it gets the greenlight from a “qualified majority” of 15 out of the 27 member states, representing at least 65% of the bloc’s population.
Analysts explained that the ACI allows the EU to impose a wide range of retaliatory measures, including equivalent tariffs on US goods or restrictions on US firms’ ability to invest or bid for public contracts in the EU.
Another trade weapon that EU officials could invoke is the EU Enforcement Regulation, a decade-old trade instrument recently updated to circumvent the US’ effective gutting of the World Trade Organization (WTO).
Washington has long rendered the WTO court system effectively useless by blocking the appointment of judges to the Appellate Body – thereby allowing WTO members to obviate court rulings by ’appealing into the void,’ a phrase that has since become common language.
The updated Enforcement Regulation empowers the European Commission to respond to any potential member-state-specific US duties based on a favourable WTO ruling, even if Washington launches an appeal.
Like the ACI, the law would also enable Brussels to retaliate in multiple ways, including by addressing the US’ significant services trade surplus with the EU.
According to EU data, the US ran a €104 billion surplus in services but a €156.6 billion deficit in goods with the EU in 2023.
“If there are trade transgression in terms of goods, the EU Enforcement Regulation allows the EU to retaliate in services,” said Leichthammer, adding that potential measures could include restrictions that target key US sectors such as investment banking, consulting, and accounting.
Leichthammer, however, warned that such actions should only be undertaken as a last resort and avoid triggering tit-for-tat escalations.
“I’m really not advocating that if Trump imposes tariffs on a few goods, we should ban US financial services from fair market access in the EU,” he said.
"But it should feature in the [bloc’s] retaliatory basket and remind Trump that trade does not solely occur in goods.”
*first published in: Euractiv.com
By: N. Peter Kramer
