Europe must show its teeth now and signal that it is ready to match Donald Trump’s threats of punitive tariffs against individual countries that support the Kingdom of Denmark.
This is the view of Jacob Funk Kirkegaard, a senior researcher at the economic think tank Bruegel in Brussels and the American think tank Peterson Institute for International Economy (PIIE).
»We cannot accept that we have an ’ally’ in quotation marks who punishes an ally for doing what he expressed concern about, namely strengthening security in Greenland. So I believe action must be taken now«.
According to Funk Kirkegaard, turning the other cheek, as Europe did last time Trump threatened tariffs, is not an option.
»Europe has tried to defuse Trump by showing tolerance, but it has clearly had no effect, so I can’t see how we can avoid striking back by matching what he says«.
Macron ready with the ’bazooka’
EU leaders have also reacted promptly to Trump’s threats. On Sunday afternoon, Denmark and the seven affected countries responded with a joint statement of support for Denmark and Greenland:
»We stand ready to engage in a dialogue based on the principles of sovereignty and territorial integrity that we stand firmly behind. Threats of punitive tariffs undermine transatlantic relations and risk a dangerous downward spiral«, they wrote, among other things, rejecting the notion that efforts in Greenland pose a threat.
On Sunday, France’s President Emmanuel Macron told the media outlet France24 that he would ask the EU to activate its most powerful instrument in the arsenal – the ’trade bazooka’ – which allows targeting American companies in a wide range of areas. The anti-coercion instrument (ACI), as it is formally called, is designed to strike back against third countries that subject the EU or a member state to coercion, and it can be activated by either the European Commission or a member state.
Jacob Funk Kirkegaard believes it is the right time to rattle that threat, now that Trump has mixed security interests, threats against territories, and trade together and is trying to divide Europe.
»Initially, the EU should say that if Trump imposes a 10 percent tariff, then the EU will do the same. And then, of course, signal that if Trump escalates further, we obviously have the right to use this instrument«. .
For the EU, it is advantageous if the battle plays out in the trade policy arena, he believes, because the EU has the ability to respond on equal footing with the US – which is not the case when it comes to military and security policy.
But a trade war hurts both parties.
The Confederation of Danish Industry has calculated that a 10 percent tariff from Trump would cost Denmark 5,000 jobs and 14 billion kroner. If the tariff increases to 25 percent, it would mean 14,000 jobs and 41 billion kroner. If the EU responds to the 10 percent, the price would rise to 6,000 jobs and 18 billion kroner, while a counter-response to the 25 percent punitive tariff would lead to a loss of 47 billion kroner and 16,000 jobs.
A number of EU countries have so far remained silent and may be less willing to pay the price for a trade war over Greenland. Late Sunday afternoon, EU ambassadors met for an emergency meeting to discuss the way forward. Once the mood among the countries is known, the European Commission will likely announce its countermeasure.
USA hit hardest
A trade war would hit both sides of the Atlantic hard, according to Jacob Funk Kirkegaard, but he believes it would hit the US hardest.
»It is the US that has a trade deficit and a gigantic state deficit, so I would argue that it is Trump and the US who have the greatest uncertainty and the most to lose«.
Moreover, it is very difficult to implement punitive tariffs in practice on individual countries within a customs union.
»The American customs system is not set up to handle goods from individual countries within the EU customs union. They handle goods worth billions of dollars daily, so it’s not something you can just do«, says Funk Kirkegaard.
»Not to mention the goods produced across the union, or German cars manufactured in South Carolina. Using tariffs as a weapon between economies that are so integrated is very difficult«.
Deals at stake next week
Several events in the coming week could derail Trump’s revenge campaign.
The US Supreme Court is expected to soon issue its ruling on the rounds of punitive tariffs that Trump has already imposed on both the EU and several other countries around the world. And the expectation is that the Supreme Court could very well pull the plug on them. Perhaps as early as next week.
»Then Trump has a problem with this constant mixing of all kinds of policy areas and punitive tariffs«, notes Jacob Funk Kirkegaard.
Additionally, the European Parliament is set to approve the trade agreement on Wednesday that Commission President Ursula von der Leyen made with Trump last year, which imposes a 15 percent tariff on all goods from the EU. The agreement was already criticized, but after Trump’s new threats, most groups in the European Parliament are now threatening to block the deal.
»If tariffs are used as a political weapon, Europe must be ready to respond,« says Stine Bosse, MEP for Moderaterne, while Christel Schaldemose (Socialdemokratiet, S) believes the vote will likely be postponed:
»There has been a very clear shift in sentiment in recent days, where people feel that enough is enough and would otherwise be ready to vote it down«.
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