The White House has threatened to apply tariffs on eight European countries in his pursuit of American control of Greenland. European leader have met to discuss potential retaliatory tariffs but are apparently currently seeking a negotiated settlement.
Observers hoping for productive diplomacy leading to de-escalation will not be reassured to learn that President Trump has reportedly written a letter to Norway’s prime minister connecting the decision not to award him a Nobel peace prize with America’s ambitions for Greenland.
If US tariffs on Europe materialise, policymakers will have tough decisions to make. Some analysts argue that the while economic retaliation against the world’s superpower would be fraught, inaction carries its own risks. For instance, Bloomberg columnist Lionel Laurent writes that “another timid acquiescence from the Europeans would be disastrous.”
Laurent points out that EU leaders could deploy the Anti-Coercion Instrument (ACI), a bit of EU legislation that authorises a set of responses by EU states to defend against economic coercion by non-EU states.
The ACI allows for a range of potential countermeasures, including – at its most extreme – restricting access from the entire EU market (hence its epithet of ‘trade bazooka’).
Even in a world where the improbable grows more plausible by the day, a fully fledged US–EU trade war still feels unlikely. Yet it remains worth stepping back to examine the deeper practical complexities involved in any European retaliation, from the intricacies of EU internal politics to the fragmented ownership of strategic European assets.
Europe is not a country
The very existence of sophisticated EU instruments such as the ACI underscores how difficult retaliation would be in practice. Any response will ultimately be a political choice, shaped not only by international and regional law but by the EU’s own internal dynamics. German Chancellor Friedrich Merz is already reportedly urging caution, while French President Emmanuel Macron appears prepared to press for ACI activation, a reminder that even Europe’s initial step requires achieving intra‑EU consensus.
Or, in US Treasury Secretary Scott Bessent’s pithy if snarky summation: “I imagine they will form the dreaded European working group first, which seems to be their most forceful weapon.”
And for politicians, security questions loom at least as large of economic ones. Poland’s prime minister has cautioned against escalation that could imperil NATO, which his country sees as vital protection against Russian aggression.
Private interests complicate the picture, too. Many large European firms are either deeply invested in the US or depend on the American market and could potentially look to lobby for a pragmatic de-escalatory response.
On the other hands, American unilateralism could also help cement a greater degree of unity within EU states. For instance, Germany’s far right Alternative for Germany, which has been sympathetic to Trump’s project, has expressed concern that Trump has “violated a fundamental election promise, namely not to interfere in other countries”.
Who owns the assets?
Reciprocal tariffs and trade restrictions are one obvious way to retaliate against economic coercion. How far-ranging are the options? Some have suggested that Europe owns large amounts of US Treasuries and could plausibly implement a coordinated sell-off of US assets.
Analysts have been quick to pour cold water on the idea. Firstly, many of those assets are privately held. Forcing a sell-off would require country-level legislation (or political coercion).
And, as the anoraks at FT Alphaville note (in an excellent post), the question of who would buy hundreds of billions in Treasuries during a politically engineered fire‑sale is unanswerable, and the blowback from destabilising the global reserve currency would hit Europe at least as hard as the United States.
Business as usual?
Investors should not be complacent about the long‑term consequences. Even a muted European response, or a diplomatic step‑down from the current crisis, could produce lasting effects. Each episode of unilateral US pressure accelerates structural shifts that gradually weaken American leverage: a steady move away from US assets, a deepening search for alternative supply chains, and the beginnings of a sea‑change in Europe’s security thinking. Modest market reaction may be covering long-term strategic drift.
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