EU threatens domination over US big tech in response to tariffs

The European Union is considering new measures to target US services exports, including steps that could hit Big Tech companies. The bloc’s decision comes after Washington slapped a 25 percent tariff on the car industry and hinted at further measures next week.

One EU diplomat told FT, “The Americans think that they are the ones with escalation dominance [in the trade war], but we also have the ability to do that,” stressing that the ultimate goal is to de-escalate tensions and reach a comprehensive trade deal. 

Officials believe that by targeting services where the US shows vulnerability, they can force Washington to come to the negotiating table.

Brussels had already responded by imposing extra duties on up to €26 billion of US goods following tariffs on steel and aluminum. 

However, European officials say the scale of the Trump administration’s actions has forced the EU to consider using even more powerful trade tools. 

The EU’s legal framework targets intellectual property and contracts

Under its Enforcement Regulation, strengthened in 2021 after an earlier trade dispute, the EU has the power to suspend intellectual property rights and exclude companies from public procurement contracts.

A potential fightback might involve restrictions on the intellectual property rights of major tech companies. This could include a ban on Elon Musk’s Starlink satellite network from winning government contracts.

In fact, Italy is already rethinking its plans to acquire the system. “Services is where the US is vulnerable,” said a second diplomat. Moreover, Washington ran a €109 billion trade surplus with the EU in services in 2023, compared with a €157 billion deficit in goods.

Economic risks and negotiation challenges loom ahead

While some European diplomats are optimistic about reaching a deal quickly, they acknowledge that such an agreement would not automatically remove all the extra tariffs imposed by the US.

“The view is that we have to respond. It is the only way to get a deal,” said a third EU diplomat, adding that previous attempts to talk had failed.

Since the EU’s exports far outstrip its imports, the bloc would find it difficult to match the US tariffs on goods. 

Moreover, Brussels does not want to risk cutting off gas supplies from the United States, which are vital to the continent’s energy needs.

“There are only so many goods imports from the US that the EU can target before that damages the economy too much,” explained David Henig from the European Centre for International Political Economy. 

“If you don’t want to target energy, there’s a limit to what can be done on goods. Whereas on services there is greater room for retaliation without so much harm to the economy.”

Some experts argue that the EU might need to use its anti-coercion instrument, the “trade bazooka,” to inflict even more economic pain on the US. 

This tool could allow the European Commission to restrict activities by US banks, revoke patents, or prevent companies from receiving revenues from software updates or streaming. 

“I would advise the European Commission to use the ACI,” said Ignacio García Berrero, a former senior commission official who led negotiations on the Transatlantic Trade and Investment Partnership, a deal that was never finalized.

Any retaliatory measures would be drafted by the European Commission but must gain the approval of a weighted majority of member states. 

EU countries are still negotiating the goods retaliation list that was drawn up in response to Trump’s steel and aluminium tariffs. For example, France has pressed for bourbon whiskey to be removed from the list to protect its own drinks industry. 

The commission has postponed measures covering jeans, motorcycles, and possibly soyabeans until April 12. These measures will be discussed with national leaders before a final decision is made.

Diplomats and officials also noted that more tariffs on googs could be on the table in response to any US reciprocal tariffs expected from the White House next week. Brussels estimates these tariffs could be around 20 percent and might hit aircraft, chemicals, and pharmaceutical products.

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