Introduction
With Ursula von der Leyen, President of the European Commission, preparing for her annual State of the Union address, she faces mounting pressure from all sides. The trade agreement reached with the United States in late July, though imbalanced and asymmetric, did not restore stability and predictability. Instead, U.S. President Donald Trump intensified his trade attacks on Europe.
Background: Trump’s Trade Tensions with the EU
Trump, known for his unpredictable behavior in negotiations, has threatened new tariffs on the European Union and its member states due to their digital regulations and taxes. This comes after the EU and the U.S. reached a framework agreement for a trade deal, with European officials hoping to settle the matter. However, nothing is definitive with Trump.
His recent attack on foreign oversight of U.S. tech companies – such as the EU’s Digital Services Act and Digital Markets Act, along with member states’ digital services taxes – has the potential to undermine Europe’s sovereignty and democratic foundations.
The EU’s Negotiation Strategy: Lessons from Past Encounters
Negotiating with Trump is like playing poker, with escalating offers and sometimes bluffs throughout the negotiation process. It’s also like chess, where each move counts towards the endgame and requires careful preparation.
For instance, the EU could have cornered the U.S. in April and May after Trump announced his “Liberation Day” tariffs, causing investor confidence to plummet. Unlike China, which forced Trump to negotiate under market pressure, the EU decided to delay retaliatory measures following Trump’s announcement of a 90-day “pause” in his overwhelming tariffs shortly after they took effect.
The EU’s wait-and-see approach proved costly. By summer, the situation had changed: markets stabilized, and the U.S. and China reached a provisional trade deal. This, combined with the EU’s loss of credibility in its threat of retaliation, weakened the EU’s negotiating position, creating a sense of inevitability around the July meeting between Trump and von der Leyen in Scotland. Although both sides lost in economic terms, Trump only cared about “winning” the negotiation and securing a massive victory for his tariff campaign.
The EU’s Response: Activating the Instrument Against Coercion (IAC)
An emboldened Trump is attempting to repeat this strategy. The EU must decide whether to resist pressure for tech regulation reform or concede again. The latter option would mean abandoning any claim to be a geoeconomic power (as recently noted by former ECB President and Italian Prime Minister Mario Draghi).
However, if the EU decides to defend itself, it needs a bold and well-thought-out negotiation strategy. This means the European Commission should immediately take action to activate the Instrument Against Coercion (IAC), the EU’s most powerful trade tool, which allows it to retaliate against third countries using coercive economic measures by imposing tariffs, quotas, export controls, intellectual property rights suspensions, service bans, and exclusion from public procurement contracts.
There’s no doubt that Trump’s threatened new tariffs equate to economic coercion.
Although the EU’s decision-making paralysis is often attributed to its unanimity rule, this does not apply to the IAC, which a qualified majority of member states can activate (though the deployment process is lengthy). A qualified majority is also needed to reject any retaliatory measure proposed by the Commission under this mechanism. Thus, the IAC functions like a “federal” instrument and is effective.
Crucially, activating the IAC early would signal the EU’s willingness to use its “economic big stick,” whereas previously, the bloc seemed reluctant to employ it at all costs. By taking the initiative with the IAC and reactivating the threat of tariffs on U.S. exports worth over $100 billion, the Commission would demonstrate that much more is at stake and show its determination to confront the U.S.
It’s expected that the prospect of a high-cost confrontation would convince Trump to abandon his threat or propose genuine negotiations (rather than unilateral agreements) to address digital services issues. Such steps would enable both parties to avoid losing face and restore some stability and predictability in the EU-U.S. relationship.
Conclusion: The Importance of the IAC
By keeping the IAC on standby, the EU risks allowing its most powerful tool against economic pressure to “rust into obsolescence.” The EU must activate it now, both to solidify domestic support and demonstrate its political will to assume its role in the new geopolitical landscape to the Trump administration and the world.
