Summary

• Faced with an aggressive new Trump administration, Europeans must understand the assets they can use as deterrents
• Across trade, technology, infrastructure, finance and people-to-people relations, the EU and its European partners hold “cards” they can play
• Policymakers should assess the relative merits of doing so, and the costs to Europe that this would entail
• The EU should create an economic deterrence infrastructure and strengthen its existing anti-coercion instrument

At the card table

“The European Union”, posted Donald Trump on his Truth Social account on March 13th, is “one of the most hostile and abusive taxing and tariffing authorities in the world”. For good measure, the US president added that the EU “was formed for the sole purpose of taking advantage of the United States”. The broadside was just the latest reminder that his administration’s trade wars against Canada, China and Mexico are heading Europe’s way, too. Already its 25% levy on steel and aluminium imports has hit the EU. At the time of writing, there appears to be a significant chance of Trump going far beyond these with sweeping multi-sectoral tariffs.

This is part of a wider story. The second Trump administration has challenged Europe’s territorial sovereignty (by threatening to annex Greenland), its digital model (by attacking its technology regulations), and its traditional political party systems (by courting radical European political forces). The president’s approach to America’s supposed allies on the continent evokes less a sober “strategic rebalancing” than the Ming dynasty’s tributary system, with European leaders expected to kowtow to the emperor in Washington. Trump also appears inclined to pressure Ukraine and its European backers into a peace deal favourable to Russia, and to withdraw significant parts of America’s security commitments on the continent.

The president has implicitly revealed why he thinks he can push Europe around like this. In a comment during his hectoring encounter with Volodymyr Zelensky in the White House on February 28th, Trump told his Ukrainian counterpart: “You don’t have the cards.” Cards are Trump’s euphemism for power and leverage. And to the extent that the American president is capable of threatening Europe across a series of fronts, this is a function of the cards he holds and his willingness to play them aggressively. In other words: Trump seeks to exploit Europe’s economic, technological, political and security vulnerabilities for coercive ends.

Europeans need to learn quickly how to play cards. They must assess the hand they have—Europe’s own sources of leverage over Trump and Trump’s America—and how to strengthen that hand. They must develop a clear and realistic plan of what they want to achieve in the transatlantic game of poker that is likely only just beginning. Where do they want to remain aligned with the US? Where do they want to rebalance the relationship? And where do they want to break from America? Then, Europeans will need to play their hand cannily in pursuit of those ends.

The first step in this process is to review that European hand of cards, what it would mean to play them and how Europeans should proceed with such decision making. Providing that review is the purpose of this policy brief.

Why deterrence matters

First, however, it is worth asking whether Europeans really should threaten to retaliate, and then do so if Trump follows through on his many threats.

After all, Canada and Mexico have deployed significant deterrents, alongside concessions and incentives, but nonetheless now face significant new tariff barriers. Trump evidently sees those not just as a form of leverage but as ends in themselves; a means of bringing manufacturing back to the US and a way to finance tax cuts. So seeking to raise their cost to an administration that sees the EU as an ideological foe may be a futile exercise. Europeans might wonder whether it is not better to let the costs of US tariffs rebound onto American businesses and households, and wait for Trump to reap a domestic backlash.

The EU and its European partners should indeed seek negotiated outcomes and hope that markets will eventually constrain the president. But neither of these considerations overrides the reality that Trump most fundamentally cares about cards—or in other words, power. So any European response will need to be rooted primarily in power rather than economics, rules or US domestic politics.

To use an analogy, nuclear weapons are bad for everyone. But if Vladimir Putin threatens to use them against Europe, that does not mean that Europe should simply pledge not to use such weapons in the hope that the Kremlin will recognise the lose-lose logic. Credible deterrence is needed. The same is true of Trump’s threats today.

Can Europe put up such deterrence? The US president does not appear to believe so. Asked at a press briefing what would happen if Europeans retaliated against US tariffs, Trump retorted: “They can’t. They can try. But they can’t. […] We are the pot of gold. We’re the one that everybody wants. […] We just go cold turkey; we don’t buy anymore. And if that happens, we win.” In other words: the US has “escalation dominance” over Europe; holding a superior position across a range of fronts—from military and diplomatic to economic and technological—that could make European retaliation a losing bet.

But the reality is more complex. If the essence of nuclear deterrence is mutual assured destruction (MAD), Europe needs to demonstrate another kind of MAD: mutual asymmetric dependency. Significant aspects of America’s prosperity and geopolitical power have for years and sometimes decades benefited from good relations with Europe. And Europeans command certain of these chokepoints. In other words: they do hold cards.

Indeed, they have played them before. In 2018, when the first Trump administration threatened tariffs on European cars, Jean-Claude Juncker as European Commission president travelled to Washington with a basket of threats and offers, successfully deterring the US president from escalating the dispute. To be sure, Trump is markedly more aggressive and unchecked in his second administration, so what worked seven years ago would likely be inadequate this time. But the EU too has evolved over the intervening years and developed a harder geoeconomic edge and new deterrent tools. For example, its Anti-Coercion Instrument (ACI, sometimes dubbed the “bazooka”) entered into force in December 2023 and provides the union with a structure for calibrating collective responses, such as counter-tariffs, to detrimental third-country policies.

It is a reminder that Europeans have cards, can continue to improve their hand and must now think hard about how to play them.

Assessing Europe’s hand

The following tables set out Europe’s options. They are split into five categories of measures: tariff and trade; services, intellectual property (IP) and digital; critical technology and infrastructure; financial; and people-to-people. Inevitably, there is some overlap between the categories. Equally inevitably, the tools in question are a dense thicket of acronyms; a brief, clarifying guide to which precedes each options table. The tables themselves indicate the rationale for using each measure, the actions and tools involved in doing so, and the prospective cost to Europeans on a scale of 1 to 10 (where 10 is the greatest risk of self-damage). That final point deserves particular reflection. None of the options listed involve no risk at all to European interests; but the degree of risk they present—and where in the EU they would fall heaviest—varies significantly.

Some further caveats are in order. Firstly, the damage scores are merely indicative, and the question of the potential harm done by each of these measures warrants further research. Secondly, this brief exclusively maps Europe’s technological and economic deterrence options. It does not cover “cards” linked to non-commercial aspects of transatlantic defence and security cooperation, like US military access to European territory, air space and waters, or Europe-US intelligence sharing. Thirdly, this brief does not recommend any options above others. Which cards to play will depend on the actions of the US administration, as well as wider European considerations about how to combine and phase responses, how to blend deterrence with concessions and incentives to compromise, and how to manage and mitigate the costs to European interests.

Europe’s cards

Tariff and trade measures

Other than the ACI, the most obvious trade and tariffs tool is the Enforcement Regulation, which enables the commission to impose countermeasures in the absence of a functioning World Trade Organisation (WTO) dispute settlement system. But the EU can also weaponise its agricultural and environmental standards to discriminate against American products; for example through its Farm to Fork Strategy (acts and regulations advancing food sustainability), its Emissions Trading Scheme (EU ETS), its Registration, Evaluation, Authorisation and Restriction of Chemicals regulation (REACH) and its Ecodesign for Sustainable Product Regulation (ESPR, which limits market access to non-European competitors failing to meet sustainability criteria).

Services, intellectual property and digital measures

Two new digital acts enable the EU to clamp down on American software and online platforms: the Digital Services Act (DSA) regulates online marketplaces, social networks and content-sharing platforms, while the Digital Markets Act (DMA) ensures that large digital “gatekeepers” respect the single market. The commission has significant tools to fine and otherwise sanction firms for non compliance with either. But further levers also apply in this area: the EU’s General Data Protection Regulation (GDPR) imposes stringent protection and privacy rules on data processing and transfers, and the Network and Information Security Directive (NIS2) is a unified legal framework upholding cybersecurity in 18 critical sectors across the EU. National authorities enforce these, with the EU playing a cross-border coordination role. Meanwhile Vertical Block Exemption Regulation (VBER) provides exemptions from the EU’s competition laws. Financial regulations too can weigh down US services firms. The Markets in Financial Instruments Directive II (MiFID II) and Markets in Financial Instruments Regulation (MiFIR) can convey and withhold passport-like rights for companies offering financial services and trading platforms in the European Economic Area. And the commission determines whether the financial regulatory or supervisory regime of a non-EU country is equivalent to the corresponding EU framework.

Critical technology and infrastructure measures

Alongside some of the levers already discussed (like the ACI and NIS2), the EU can use various foreign-policy, defence and energy regulation tools to restrict American access to its critical infrastructure. The Permanent Structured Cooperation (PESCO) framework for joint military capability-building projects, the European Defence Fund (EDF) coordinating defence research and interoperability, and now the new ReArm Europe financing initiative can curb European procurement from US firms. Other tools enable Europeans to discriminate against those firms on strategic grounds: Article 346 of the Treaty on the Functioning of the European Union (TFEU) exempts military procurement from some single-market rules, the European Union Agency for Cybersecurity’s (ENISA) certification process provides common cyber standards, the EU Dual-Use Regulation restricts sensitive technology exports, and its Foreign Direct Investment (FDI) Regulation allows for the screening of inbound investments. But other “civilian” mechanisms also apply in this area. The International Procurement Instrument (IPI) enables the commission to impose tit-for-tat market restrictions on firms from countries that restrict their European counterparts, and the recently implemented Foreign Subsidies Regulation (FSR) enables Europeans to target companies in receipt of foreign subsidies. The EU can likewise use its Methane Regulation (monitoring and reducing methane emissions) and the Carbon Border Adjustment Mechanism (CBAM, the carbon tariff on imports to the EU coming into full force in 2026) to tighten the screws on US firms. Where critical technology is concerned, the EU’s AI Act (the world’s first) and its Horizon Europe and Digital Europe research programmes can be turned against US technology giants.

Financial measures

The EU and its member states have various means of loosening their financial relationships with the US. Measures to reduce US debt holdings and dollar-denominated trade could harness the Capital Requirements Directive/Regulation (CRD/CRR) and Solvency II regulations, whose prudential standards encompass banking licences and risk weightings, and the European Central Bank’s (ECB) currency swap lines, which can incentivise euro-denominated transactions and collateral holdings to weaken the dollar. Financial market protections like the Anti-Money- Laundering (AML) directives targeting hot money and the Markets in Crypto-Assets Regulation (MiCA) governing cryptocurrencies can take aim at the (often Trump-friendly) US crypto scene.

People-to-people measures

In this area, too, the ACI can be useful. So too can the EU sanctions tool enshrined in its Common Foreign and Security Policy.

How to build Europe’s economic deterrence regime

While it is beyond the remit of this policy brief to specify which cards the EU should prepare to play, it does propose that the union create a proper framework for deliberating on and reaching those decisions. Despite the advances of recent years—including the adoption of the ACI, the FDI regulation and the FSR—EU institutions and member-state capitals still treat economic deterrence as a narrow, defensive matter of risk mitigation. Faced with an antagonistic US administration as well as other adversaries like Russia and China, it must now build more pro-active and politically coordinated structures for action.

1. Publish an economic power doctrine

The EU, led by the commission and major member states, must define a fully-fledged economic power doctrine that articulates how, why and for what purpose Europe will use economic power in the age of cards. The doctrine must make explicit that checking coercive threats, preparing a war-ready economy, building and maintaining positions of asymmetric leverage, and cutting technological and industrial dependencies are vital European security interests. It should assert the case for Europeans to pool and deploy economic power in pursuit of these interests, even if this means challenging international trade rules. Europe’s core interests are to promote economic growth and protect its citizens—not to uphold international trade rules per se. These ends have long overlapped, but the Trumpian revolution, China’s unrelating mercantilism, and Russia’s destructive ambitions have already decoupled significant parts of the global economy from such strictures. Europeans can only restore international rules and institutions from a position of power.

2. Appoint an economic deterrence tsar

Europe’s negotiations with great powers like the US or China cannot be fragmented. Inspired by Michel Barnier’s centralised mandate to lead the Brexit talks with the British government on behalf of the EU, the union must appoint an economic deterrence tsar reporting directly to the European Commission president and not bound by organisational silos.

This tsar should wield a broad, cross-sectoral mandate encompassing trade, finance, digital, and regulatory domains. They should have clear authority to coordinate rapid responses spanning those domains, and to implement a credible, unified communication strategy both within the EU and externally. In close coordination with an EU Economic Security Network (EU ESN) as proposed by ECFR’s Agathe Demarais and Abraham Newmann of Georgetown University, the economic deterrence tsar should be tasked with developing a unified map of Europe’s dependencies and leverage points across different policy domains. This knowledge is currently scattered across the commission and across member states.

3. Establish an economic deterrence steering group

Recognising that not all member states may fully embrace this agenda, those who do should form a “coalition of the willing” by establishing an economic deterrence steering group. The group would propose strategic directions for the deterrence tsar and ensure prompt, coordinated action across the bloc. This group could include heads of government from leading EU economic and technological powers (France, Germany, Italy, the Netherlands, Poland, Spain and Sweden) along with the presidents of the commission and the council. Trusted non-EU allies—especially the United Kingdom—should be integrated in an associate capacity, formalised perhaps through the planned EU-UK security pact, to align on responses to coercion and other pressures. This model would mirror how France, Germany, Poland, and the UK have taken a central role in planning European security guarantees for Ukraine in recent weeks.

4. ACI 2.0

Europe’s most potent deterrence tool, the ACI, requires two qualified-majority votes and prolonged consultations. It would benefit from a fast-track mechanism that can be triggered by the deterrence tsar, enabling emergency responses within a defined timeframe (for example, a 72-hour decision window). Simultaneously, the EU should redefine “coercion” within the ACI to encompass a broader spectrum of threats; including digital sabotage, political destabilisation, cyber attacks on individual companies and assaults on democratic processes.

5. Shoring up the power base

The EU should establish an economic solidarity fund, financed by revenues from tariffs, digital fines, and other geoeconomic penalties, to compensate member states or sectors that are disproportionately affected by foreign aggression or EU retaliatory measures. In parallel, it should target support measures—such as grants and low-interest loans—to help strategic industries that are vulnerable to foreign weaponisation build alternative sourcing and secure supply chains, following the example of Japan. The European Investment Bank could finance these programmes, with specific funding calls for proposals for de-risking industries.

The long game

Preparing robust defences against US aggression could, counter-intuitively, stabilise the transatlantic bond in the long run. If Europe can credibly show that bullying tactics will backfire or amount to mere Pyrrhic victories, it could over time weaken those factions in Washington that back Trump’s combative and lose-lose use of America’s cards. It could even change some minds. By playing a united hand, Europeans can disprove Trump’s claim that Europe cannot match him in upping the ante. But that will mean building the infrastructure needed to join up the relevant assets and decisions. Whether it is a game of British bridge, Dutch toepen, French belote, German skat, Italian briscola, Latvian zole, Polish baska, or Spanish el mus, victory at the card table usually comes from combining mutually complementary cards at the right time. Ultimately, Europe’s strength in this new age depends on its ability to consolidate its economic cards into one formidable hand and play that hand smartly, transforming individual assets into a collective trump card against coercion.

To read the full Policy Brief as it appears on the European Council on Foreign Relations website, click here.

To read the full Policy Brief as a PDF, click here.