⏱️ 2 Mins Read
Is it now the right time for the European Union to deploy its trade bazooka to extract meaningful concessions from the US and China? This is the first question that comes to mind, especially when we review the recent trade relations of the EU with the US and China.
📌 Executive Brief
- The cost of restraint: A year of absorbing US tariffs and China’s export restrictions with no retaliation has left the European Union’s investment growth at just 0.6%, with global investors now pricing in “European political paralysis” as a structural risk.
- The weapon exists, but no one will fire it: The Anti-Coercion Instrument is designed for exactly this situation, but member states with heavy bilateral exposure to the US or China keep blocking its use, leaving European businesses in prolonged uncertainty while Washington and Beijing face zero consequences.
The EU’s Leverage Problem
For over a year, the European Union has absorbed all economic and geopolitical blows from both Washington and Beijing with almost no retaliation.
From President Donald Trump’s tariff impositions and territorial ambitions regarding Greenland, to China’s rare earth embargoes and semiconductor export restrictions, Brussels has kept choosing restraint over confrontation.
Europe’s ‘restraint’ has created a measurable investment gap: real investment growth in the European Union in 2025 was a mere 0.6%, compared to significantly higher growth rates in the US and China.
There are reports that European multinationals, to avoid retaliation from Beijing or Washington, are placing only what is strictly necessary within China to comply with local regulations, while simultaneously decoupling their global R&D operations — a ‘double-stacking’ of supply chains that is increasing costs and reducing economies of scale.”
According to the IMF, “Institutional investors are increasingly pricing in ‘European political paralysis’ as a structural risk. Sovereign risk premiums for advanced economies typically rise by 30–45 basis points during geopolitical shocks. In Europe, the inability to act as a unified security guarantor has led to a ‘discount’ on European assets as investors hedge against the lack of a credible EU-level response to external coercion.”
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Researchers from a European think tank have identified several largely untapped high-pressure points that could yield significant economic leverage for the European Union over the United States and China.
The key high-pressure points highlighted by the researchers to tap for gaining business leverage over the US and China are:
• European suppliers control 80% of U.S. low-enriched uranium imports, giving Europe leverage over Washington’s push to quadruple nuclear energy capacity.
• Siemens Energy’s dominance in gas turbines — critical for AI data centres — is another chokehold; redirecting supply to European buyers could cost U.S. tech firms an estimated €50B ($59B).
• Restricting European Union market access for the “Magnificent Seven” (Apple, Alphabet, Microsoft, Amazon, Meta, NVIDIA, Tesla) could threaten up to 23% of their combined revenues, risking stock market corrections affecting U.S. pension funds.
• Europe holds significant leverage over China too — 41 products China sources almost exclusively from Europe, including large steam turbines and industrial presses vital to its housing and power sectors.
• Europe also holds a near-monopoly on insulin supply to China — a dependency that could trigger a public health crisis if weaponized, though most analysts consider such a move politically unthinkable given humanitarian implications.
Most analysts believe the current US tariffs on European Union goods — ranging from 15% to 25%, including levies on dairy products and luxury goods — were the trigger for the EU’s Anti-Coercion Instrument (ACI).
However, the ACI operates under Qualified Majority Voting (QMV), which requires the support of at least 15 member states representing 65% of the European Union population — bypassing the traditional unanimity requirement. Despite this lower threshold, the instrument remains unused. The delay is political: member states with high bilateral exposure (e.g., Germany with China, or Eastern Europe with US security) fear being the first to pull the trigger — leaving European Union businesses in a state of prolonged uncertainty.
