Mitigate, Deter, Escalate: Europe’s Options Against U.S. Economic Coercion

As the U.S. tariffs approach their limits, the Trump administration will turn its sights to other fields to put pressure on Europe. In their article entitled Mitigate, Deter, Escalate: Europe’s Options Against US Economic Coercion, experts of the European Council on Foreign Relations (ECFR) predict three scenarios of escalation between the European Union and the USA in the fall and winter of 2026.

Currency

In the fall of 2026, the U.S. tariffs have bumped up against their limits. But America’s trade deficit remains abysmal. The White House decides to weaken the dollar in order to reduce the U.S. trade deficit by making American exports more competitive and imports, more expensive. This requires a revamp of the Plaza Accord of 1985, when major foreign holders of U.S. Treasuries agreed to sell a portion of their holdings to engineer a depreciation of the dollar.

A sudden depreciation of the US dollar would entail an appreciation of the euro, hurting EU exporters. Europeans are exposed, as EU member States are jointly the largest holder of U.S. Treasuries. European central banks and investment funds hold around USD 2 trillion in Treasury bonds. Besides, Trump may resume its threats to annex Greenland – in order to bully the Europeans into this new agreement.

Energy

Due to the costly war on Iran, frustration with allies is boiling over in Washington. The Strait of Hormuz remains only partially open, with tanker traffic at just 30% of its pre-war levels.

There is an energy crisis in Europe. German household energy bills are running a third above 2025 levels, and Europe’s chemical industry is warning that further price rises will trigger production curtailments. Europe’s reliance on American energy keeps rising: the USA supplies more than 60% of the EU’s LNG imports.

The USA has decided to mount its pressure on allies. The Trump administration presses the EU to sign even more 20-year contracts for American LNG. Besides, it makes an explicit alliance condition of European alignment with America’s Energy Dominance doctrine, which aims to maximize domestic fossil fuel production and accelerate energy exports.

The EU faces a triple whammy: a structurally impossible commitment to treble its LNG imports (the Turnberry accord); even greater dependency on American LNG supplies which it cannot easily replace; and a U.S. administration embracing energy coercion.

Technology

Despite U.S. pressure, Europeans continue to regulate American tech companies. Digital services taxes remain in place. The Europeans have refused to repeal or amend the Digital Services Act (DSA) and the Digital Markets Act (DMA).

Trump cannot bear the fact that the EU is daring to impose fines and sanctions on American companies for violations of competition and digital services rules.

He decides to hit at Europe on digital regulation – a domain where the president can act without congressional approval. His administration makes two demands. First, national governments in France, Italy, Spain and elsewhere must repeal their digital services taxes. Second, the European Commission must halt all investigations into American companies under the DMA and DSA.

Should these demands not be met, Trump warns that his administration may compel US cloud providers to deny services to the European Commission and EU member states, as well as restrict European access to Nvidia semiconductors. He also hints at placing the commission’s director-general for competition and director-general for connectivity – the officials responsible for enforcing the DMA and DSA, respectively – under American sanctions.

Europe is dependent on the USA in the fields of energy, finance and digital technology, which means that the EU is unable to pursue a policy of its own.

Source: https://ecfr.eu/publication/mitigate-deter-escalate-europes-options-against-us-economic-coercion/