Reports indicate that the United States has proposed more stringent trade terms, including raising tariffs to 15% or higher, maintaining the current 25% tariffs on Cars, and potentially imposing a 100% tariff on pharmaceuticals. In response to the U.S.'s tough demands, Germany's stance has shifted, and the European Union is becoming increasingly firm, considering the use of 'anti-coercion instruments' and other retaliatory measures.
A transatlantic trade agreement that once seemed close to being reached is now on the brink of collapse as the United States proposes more stringent trade terms.
According to media reports on the 21st, EU Trade Commissioner Maroš Šefčovič was informed during negotiations in Washington that US President Donald Trump expects more concessions, including raising the base tariff on most European commodities from the previously discussed 10% to 15% or higher. The current 25% car tariff is expected to remain unchanged, and a 100% tariff on pharmaceuticals is also under consideration. According to CCTV, Trump had previously threatened to impose a 30% tariff on imports from the EU starting August 1st.
Sources familiar with the matter told the media that Germany, the largest economy in Europe, which had previously been a strong advocate for an agreement, has now shifted its stance closer to that of more confrontational member states like France. EU member states are urging their executive body to prepare retaliatory measures that go beyond traditional commodity tariffs in case the negotiations fail.
As the strongest response, the EU is seriously considering the activation of its Anti-Coercion Instrument (ACI). This legal tool, seen by some as a 'nuclear option,' would authorize the EU to impose restrictions on US services, public procurement market access, and even investments. Such a move would mark a significant escalation in the potential conflict, posing a serious threat to the daily flow of over $5 billion in transatlantic trade and services.
The negotiations have taken a sharp turn for the worse, with the US raising its demands.
For months, the EU has been working to salvage its trade relationship with the US and had been optimistic about reaching an agreement. EU Trade Commissioner Šefčovič made several trips to Washington, expressing Europe's willingness to lower tariffs and increase purchases of US Energy products and advanced semiconductors by billions of dollars. Both sides had come close to agreeing on a 10% base tariff.
However, according to multiple media reports, Šefčovič received disappointing and even contradictory messages during his talks in Washington last week. An EU diplomat said that US Trade Representative Jamieson Greer indicated that the 10% base tariff previously discussed was still reasonable, but US Commerce Secretary Rutnik suggested that the rate needed to be higher. Šefčovič's final impression was that the US was seeking a base tariff of 15% or even higher.
What is even more unacceptable to the EU is that, according to reports, the US informed Šefčovič that the current 25% tariff on cars is expected to remain in place and that a 100% tariff could be imposed on pharmaceuticals. Additionally, Washington rejected the EU's proposal for a 'standstill' arrangement—meaning no new tariffs would be imposed after an agreement is reached. According to diplomats, the US rationale is that the president's hands cannot be tied on national security issues, which is the basis for the US 'Section 232' investigations into areas such as pharmaceuticals, semiconductors, and timber.
Germany's shift in stance leads to a tougher EU position
Washington's hardline demands are serving as a catalyst for unity within the EU. For a long time, countries like France have advocated for a stronger stance against the US, while Germany, as an export-oriented economy, has been inclined to reach a preliminary agreement with the Trump administration as soon as possible.
According to people close to the discussions, the US pressure in the latest negotiations for higher tariffs and no exemptions for the European auto industry was the last straw for Germany. Berlin has finally shifted its stance, opening the door to retaliatory measures. A German official said on Friday: “All options are on the table,” and added:
“If they want a war, they will get a war.”
This shift in attitude is a key 'turning point.' Now, more and more EU member states, including Germany, are indicating that broader countermeasures should be considered. According to EU diplomats, after Šefčovič presented a 'sobering report' on the current situation to EU envoys last Friday, the sentiment for retaliatory actions among EU countries has significantly intensified.
With the 'Anti-Coercion Instrument' at hand, countermeasures go beyond tariffs
As previously mentioned by Wall Street CN, in the face of escalating threats, the EU is looking to its most powerful trade weapon—the 'Anti-Coercion Instrument' (ACI). This tool was established in recent years, initially designed more to address challenges from economies like China, and has never been used before.
Led by France, a majority of EU countries support the use of this tool, which grants EU officials broad retaliatory powers, including the imposition of new taxes on U.S. tech giants, restrictions on U.S. investments in Europe, and limitations on U.S. companies' access to the EU market. According to media reports citing informed sources, trade ministers discussed this issue at a meeting last Monday.
French Minister for European Affairs Benjamin Haddad said in an interview:
"In these negotiations, you need to show strength, force, unity, and determination."
In addition to the ACI option, the EU has prepared two tariff retaliation plans. One set of tariffs on €21 billion (approximately $24.5 billion) worth of U.S. goods is currently suspended until August 6; another set of countermeasures targeting €72 billion of U.S. exports is awaiting a final decision. These plans cover a wide range of iconic American products, from aircraft to peanut butter and whiskey, and would take effect quickly if activated.
Hope remains for an agreement, but both sides face significant costs.
Despite the growing confrontational atmosphere, EU officials and member states have indicated that a negotiated solution remains the preferred option, and they do not intend to initiate any retaliatory actions before the August 1 deadline. U.S. Commerce Secretary Raimondo also expressed optimism in an interview with CBS on Sunday, stating, “I am confident we can reach an agreement.”
However, the very preparation to activate ACI reflects the seriousness of the situation. A week ago, European Commission President Ursula von der Leyen stated that ACI was established for special circumstances, saying, “We are not there yet.” However, with the latest round of negotiations breaking down, this assessment may well change. To activate ACI, the European Commission needs the support of 15 member states representing 65% of the EU population.
At present, EU member states must decide how much more they are willing to concede to secure an agreement and what scale of countermeasures they will take if negotiations fail. As one EU diplomat stated last Friday:
"All options will cause harm."
Editor/Rocky