European Economic Tools of Coercion

In these times of turmoil and geopolitical conflict, no nation or union can afford to be naive or passive, including the European Union. With Trump in office, global trade relations have faced many challenges and that dynamism seems to be something that will persist. With Trump’s “Liberation Day” tariffs and repeated challenges to Greenlandic, Danish and European sovereignty it is evident that the EU and its member nations must be prepared to stand up against adversarial pressure. Much light has been shed on tariffs, but what other tools are at the EU’s disposal?

Liberation Day

On Liberation Day, the US announced a wave of tariffs affecting countries all over the globe. This was the beginning of a very chaotic presidential term, characterized by challenges to relationships and orders that were previously taken for granted. At the time of writing, the US is waging war with Iran and tensions seem like they will remain high for the foreseeable future. 

Even before Liberation Day, Trump had already done much to stir up global relations. In January 2025 he started pushing for an American takeover of Greenland, something that many had seen coming given earlier comments. This seemed to blow over quickly, but 2026 started with renewed US comments about ownership of the island. The possibility of further actions seems to remain as long as Trump is in the White House.

The Trump administration has so far been a very active one and it might be helpful with a quick timeline of some relevant events to the theme of trade and economic coercion:

• Jan 6 2025 - Even before inauguration, Trump started to pressure Denmark to accept his offer to purchase Greenland.

• Jan 20 2025 - Trump was inaugurated and his words were once again backed by the US state.  

• April 2 2025 - Liberation Day: A new worldwide tariff-regime was announced, forcing many countries to renegotiate and reevaluate their trade-relations with the US.

• July 27 2025 - EU trade deal framework announced by Ursula von der Leyen, not yet approved by the European Parliament.

• Jan 3 2026 - Renewed US pressure on Greenland provoked a freeze of US-EU trade negotiations and generated increased friction between the two Unions.

EU-US trade deal put on hold

After intense negotiations, EU Commission President Ursula von der Leyen and Trump came to an agreement on a trade deal, a large step in the direction towards normalized trade relations between the two unions. The “Agreement on Reciprocal Fair, and Balanced Trade” faced much criticism for being disadvantageous for the EU, but nonetheless the negotiation process progressed. 

With continued US pressure on Greenland, Denmark and several other EU-countries, the progress toward a trade deal reverted immediately with the European Parliament freezing the process.

Different outcomes after Liberation Day

China, previously facing 20% tariffs from the US, was hit with an additional 34% tariffs and immediately responded with statements about opposing  coercion and aimed for a more confrontative approach than many smaller countries. Using economic stimulus and a consistent posture towards the US, China has managed to still stay out of a disadvantageous deal with the US, something few other countries can boast of. 

While China leveraged economic policy, diversifying trade relations and stood up towards the pressure, other nations were less successful in withstanding the economic might of the US. One not so very well off nation is Brazil. Initially faced with a 10% “reciprocal” tariff it was later raised to 50%, a significant problem for the Brazilian economy. 

An even more unfortunate example than Brazil is Lesotho. The small African country was hit with the highest initial tariff burden of all and its economy took a massive hit, with little ability to leverage its economy in negotiation with the US or deal with the outcome of the tariffs. 

The EU needs to prepare

Given recent pressures and experiences, it is evident that preparedness and willingness to stand up against coercion is necessary for the EU going forward. There are always military options, but war is costly, risky and generally undesirable. Europe’s real strength lies in its economy and there are several ways it can be leveraged in defense against attempts of coercion. 

European tariffs

The single market is one of the foundations of the EU and one of its greatest strengths. It not only grants many economic benefits to its member countries, but also becomes something it can allow or deny other states participation in.

The EU has about 450 million inhabitants spanning 27 member countries with a total nominal GDP of about €18 trillion. For comparison, The US has a population of around 342 million and a nominal GDP of $31 trillion at the end of 2025, while China has a population of about 1.4 billion and a nominal GDP of close to $19 trillion.

The EU is often stated to have a trade surplus towards the US, meaning it sells more than it buys, but that refers specifically to goods, where the US sells €334.8 billion worth of goods to the EU and the EU sells €532.3 billion worth of goods back to the US. This results in a surplus of €144 billion for the EU, but with services taken into account the total becomes a much lower €50 billion, about 3% of total trade between the EU and the US in 2024.

The US has, mostly through its tech-giants, a large service surplus towards the EU. As the US utilises its economy’s relative insensitivity to other countries' tariffs on goods, it is vulnerable in the area of services. This is something that policy-makers in the EU know, and is targeted in counter-coercion actions formulated in Europe.

Escalation and the Anti-Coercion Instrument

As the EU-US tensions escalated over Trump's statements on Greenland, several European politicians pushed for the activation of Europe’s new anti-coercion instrument, nicknamed “the trade bazooka”, adopted by the EU in 2023. This recently adopted tool was developed in response to Chinese pressure on Lithuania following that Taiwanese representation was allowed to open in Vilnius, but may come to be targeted towards the US instead. The anti-coercion instrument is legislation that allows the EU to use economic means to ward off perceived attempts of coercion on the EU or its member countries. Like many other things European, this legislation does not work quickly but the possible consequences for the receiving end may be large enough to be deterred by the mere suggestion of its use. In addition to threats of using the Anti-Coercion Instrument, the EU prepared a €93 billion retaliation package during 2025 in response to US pressure on the EU, and in the beginning of 2026 it was once again proposed as a possible countermeasure.  

US Treasuries & other tricks

What might be the biggest weakness in the US economy is its massive national debt. At over $39 trillion, and growing with no end in sight, it demands an increasingly burdensome part of the national budget to be allocated as interest payments. After social security and medicare, the interest payments on the US national debt is the third biggest expense and will continue to grow until it is the single biggest post if the US continues on its current path. As debt reaches maturity, if not paid through taxes it has to be repaid by issuing new debt, and this is how the US national debt keeps being “kicked down the road” at the cost of increasing the inevitable problem even more. 

When issuing new debt, the interest rate is set by the market at bond-auctions (treasuries in the case of the US,) which can be simplified as lower risk of the government not being able to make the payment at maturity causing a lower cost of borrowing, as the buyer takes on less risk. Part of the value of a bond comes from its transferability. US treasuries are resold on open markets and are widely held by both states and private entities. A lower demand for these US bonds, both at the bond-auction and at the open market, causes the interest rate to rise and the debt becomes much more expensive to manage.  

In response to tensions over trade and Greenland, a possibility is using the US national debt as a pain point. A large sell-off of these assets would negatively affect the price of treasuries and thereby increase interest rates, causing US debt-servicing costs to rise. At the size of the US national debt, a small increase in borrowing cost may put a large strain on the US national budget and cause severe economic pain. 

The “Trade Bazooka” lists as one of its measures targeting the IP-rights of companies associated with an aggressor state, which would be detrimental to many companies if they lost their competitive edge and their investments in IP became null. Finally, the EU has the ability to choose contracts more actively, avoiding buying from any adversary in public procurement. This would lead to an immense loss for those who lose out on the contracts, especially in major infrastructure and arms deals.

Risks & costs of methods

While the EU has many options in how to deal with pressure, they are not necessarily without their own consequences and just because something is possible does not mean it is a good choice. A common criticism of the EU is that actions often are slow and follow extensive bureaucratic processes. However, this is simultaneously one of Europe’s strengths. 

As rapid decisions and escalations may be efficient in setting examples to adversaries, the same decision may be received very poorly by the markets and industry. Stability and predictability are two of Europe’s greatest strengths in times of uncertainty. While the White House moves swiftly and erratically, no investor is scared off by quick and hasty tweets from European Commission president Ursula von der Leyen or European Council president António Costa. A more bold and witty European leadership may win an individual trade conflict, just like the US often does, but it may scare off partners and investors as can be seen on the other side of the Atlantic. 

Selling treasuries may be an effective threat in deterring undesired actions, but it comes with a significant cost. US treasuries are held because they are valuable and a natural part of a diversified bond portfolio. Any sell-off would generate costs by lowering the value of other held US treasuries as well as the indirect cost of ending up with a less diversified and less stable portfolio. Using treasuries as leverage is further complicated by the fact that only a fraction of treasury holdings in most European countries are held by state-run entities, making a larger selloff more complicated and requiring pressure on non-state actors such as banks or pension funds in order to realize the intended outcome. 

As often brought up in US debates on Trump’s tariffs, they are a tax on imports and not a fee that the exporter has to pay (although the cost is shared by importer and exporter through change in price as any economist would point out). While raising tariffs may be a reasonable response against tariffs used to coerce the EU, it is costly for anyone to impose regardless of why they are put in place. Prices would rise for consumers and for material imports, affecting both public sentiment and the overall economy. This may of course be justified if it allows the EU to evade a worse position in the future, but is by no means without cost or consequence. 

Choosing to not do public procurement from antagonistic states is an obviously impactful option, but doing this may directly impact the EU and its member countries negatively if it means that an inferior alternative is chosen. This is especially clear in arms procurement, something far too complex to be adequately explored here, where weapons from different producers may vary significantly in function, price and quality. 

Like with other points about investment climate, touching IP-rights is a very risky alternative given how essential patents and media rights are to businesses that rely on them. While the EU shouldn’t immediately rule out any alternative too hastily, decision makers should really think twice before touching this cornerstone of the modern economy. 

Political will among members

While many tools have been discussed by powerful decision makers in the EU, there is a constant issue that affects everything the EU does. It is not one unitary state, not even a state at all, but rather 27 individual states all with their own issues and priorities. While Macron could be described as hawkish in the context, proposing the use of the anti-coercion instrument, the same attitude is usually not held by Germany. As a heavily export dependent country Germany tends to be hesitant in questions that may negatively impact trade. However, recent rhetoric from German Chancellor Friedrich Merz shows that even German leadership may be willing to take risks in order to preserve sovereignty if push comes to shove.

Concluding remarks

In an increasingly dynamic world, there are fewer and fewer excuses for the EU to be passive in response to global pressures, not only to take on conflicts in single distinct cases, but more importantly to show that it can’t be pushed around. As responding to attempted coercion becomes increasingly more relevant, new and creative strategies are developed to allow the EU to successfully dissuade unfavorable actions by other states and these are currently being shown more and more in reality rather than remaining as mere discussions. There is immense potential for the EU to defend and even strengthen its place in the world as long as will and unity can be found among the members of the union. If the increasing trials cause the EU to become more responsive and coherent, the union may come out stronger as others try to hurt it. 

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Gunnar Åkerlind is the Vice Editor-in-Chief at the Stockholm Journal. He is pursuing a Bachelor's of Economics at the Stockholm University, with a background of previous studies in chemistry at the Royal Institute of Technology. He has broad interests in economics, trade, the environment and international relations.