When the Trump Administration threatened tariffs last month against countries looking to block any plan to annex Greenland, European leaders debated responding with the region’s trade “bazooka” – a retaliation mechanism that could target US tech firms selling into the European Union. 

The anti-coercion instrument, introduced in 2023 and so far unused, is designed to deter foreign governments from applying economic pressure against EU member states. It provides the legal basis for the EU to impose a broad range of retaliatory economic restrictions, allowing it to escalate its response without relying on traditional trade dispute procedures.  

Countermeasures could be applied to various industries. In the case of the US, technology services – including cloud computing and software – would be potential targets. 

“If you want to target the US and hurt the US, it’s the technology sector and digital services area that you want to go to,” said Holger Görg, professor of International Economics at the University of Kiel and director of the “International Trade and Investment” research group at Kiel Institute. 

The EU and the US have the world’s largest bilateral trade partnership. But while the US has a significant goods trade deficit with the EU – everything from German cars to Italian wine – it’s a different case for services, where the US ran a €109 billion surplus in 2023, or roughly $120 billion. (The European Council, citing EuroStat data, put the EU services deficit at €148 billion in 2024, or about $158 billion. The deficit figures vary, depending on source.)

The prospect that European leaders might turn to drastic economic action arose after US President Donald J. Trump made repeated comments that he wanted the US to take over Greenland, an autonomous territory of Denmark. Danish and other European leaders have flatly rejected the idea, though Trump keeps talking about it as a possibility.

Around three quarters of total EU-US service trade is made up of “digitally deliverable services,” according to Eurostat figures cited in a Kiel Institute report. That broad category includes cloud computing and enterprise software, alongside other remotely delivered services. 

“The US is a big services exporter, and a big technology exporter,” said Görg. “These companies rely on international markets a lot; if you limit that, it’s disruptive.”

Beyond any economic impact, the instrument could give the EU leverage over sectors with companies that can then exert political pressure on their own government. 

“We can say with nearly 100% certainty that the Commission is already conducting an assessment [about which sectors it would target],” said Dylan Geraets, counsel at international law firm Mayer Brown. “If the assessment shows that cloud computing would be a sector that would be very negatively affected — and could conceivably exert pressure on the US government to stop the behavior that the EU is accusing the US of engaging in — then that would definitely be on the table.” 

How could the EU respond?

The regulation sets out several counter measures that could be applied to technology services (more details are available in Annex 1 of the regulation document).

One possibility would be increased customs duties and additional charges on imports. The Commission could also exclude US technology companies from accessing the European market by blocking them from public sector procurement tenders, for example. That could be implemented as a complete ban or for contracts up to a certain value, said Geraets.

Other potential measures include limits on US tech firms’ ability to invest in Europe — such as preventing the acquisition of startups in EU member states, for example — or placing restrictions on expansion of EU operations. 

Any measures to restrict access to US technology services or increase prices would “have big implications” for European technology buyers, said Görg. 

“If [the EU] really were to implement a digital services tax or restrict access to US companies, that would really hurt the public sector here, as well as a lot of private companies,” he said. “That’s always the case: the person implementing trade restrictions is always the one hurting themselves — perhaps the most, and certainly very significantly.” 

The major question still unanswered is whether the EU would be willing to place restrictions on a technology sector on which it has become so reliant. 

While there’s been a significant upswell of interest in digital sovereignty among European organizations — and some notable efforts to achieve this, such as the French government’s plans to replace Microsoft Teams for 200,000 workers — the reality is that many private and public sector organizations depend heavily on US tech providers.

As a result, restrictions on consumer digital services such as US social media companies seem more plausible than business technology providers, said Dario Maisto, senior analyst at Forrester. “How many companies nowadays can do without the Microsoft suite?” he said, pointing to Airbus’ almost decade-long attempt to migrate off of Microsoft’s productivity applications to Google’s alternative. 

European customers currently see few options that can achieve feature parity with Microsoft’s software suite, he said. “If you want to migrate from Excel to Google Sheets…, you will have months and months of projects going on just to replace the macros in Excel. So how doable is it?” Maisto said. “You can impose tariffs if there is an alternative — if you want to hit the market to privilege another – but there is no other one.”

Ambiguity could be strategic

Because the instrument has not been used before, it’s unclear how the measures would be applied in practice — or how far the EU would be willing to push. The ambiguity could be beneficial to the Commission, according to Geraets. “This is precisely the deterrent effect that the EU intends to have with this,” he said. “It’s relatively unknown at this stage, I would say, as to how far this could go.”

The level of retaliation would depend on the nature and extent of damage caused by an example of economic coercion. Exactly how the EU would determine what constitutes an appropriate response is unclear. 

“How can you quantify, let’s say, the loss of Greenland, or the expenditure required to prevent Greenland from being lost? That’s incredibly difficult to do,” said Geraets. 

The uncertainty also means the Commission has a lot of discretion over how it responds. This opens the door for lobbyists to try to push the Commission to exclude certain sectors from any sanctions. “If the US tech industry were to be targeted, you can be quite sure that there would be a lot of lobbying engagement with the Commission to try and avoid that,” he said. 

Any measures put in place would, in theory, be temporary. The Commission is required to continually review the economic coercion taking place and the effectiveness of the EU response. It should cease the use of the instrument as soon as the coercive behavior ends. 

“The bottom line is the objective would be to take away the coercive behavior,” said Geraets. “This is not a punitive instrument, at least that’s not the way in which the EU has formulated it. Rather, the aim would be to make the economic coercion that is taking place cease to exist: that’s the key objective.”