EU threatens 'trade bazooka' as US tariffs spark backlash

Trade tensions between the US and the European Union have intensified, with the EU considering retaliatory measures in response to US tariff threats linked to President Donald Trump's efforts to acquire Greenland.

The European Parliament is expected to announce the suspension of a trade deal agreed in July at Trump's Turnberry golf course in Scotland. The deal had lowered US levies on European goods from 30% to 15%, but still required formal approval from the European Parliament, says the BBC.

Bernd Lange, chair of the European Parliament's international trade committee, said there is "no alternative" but to halt the process, citing US tariffs as a "coercive instrument" against the territorial integrity of an EU member state.

The dispute has already affected financial markets. Major US indexes fell sharply, with the S&P 500 dropping more than 2% and the Dow Jones sliding over 1.7%. European markets also recorded their second day of losses. Investors have sought safe-haven assets, pushing gold above $4,800 an ounce for the first time, while silver remained near record highs.

Europe is weighing retaliatory measures, including an "anti-coercion instrument" described by French President Emmanuel Macron as a "trade bazooka." A plan to impose levies on €93 billion ($109 billion) of American goods, originally designed in response to Trump's "Liberation Day" tariffs, has been put on hold. That reprieve expires on 6 Feb; unless the trade deal is approved or extended, EU levies will automatically take effect on 7 Feb.

US officials have warned against retaliation. Trade Representative Jamieson Greer said, "crazy things happen" when countries ignore US advice, while Treasury Secretary Scott Bessent urged European leaders to "take a deep breath" before acting. Commerce Secretary Howard Lutnick also indicated that the US would respond if levies are imposed.

Macron criticized US tariffs as "fundamentally unacceptable" when used to pressure sovereignty. Canadian Prime Minister Mark Carney added that middle powers should unite rather than negotiating bilaterally with a "hegemon," warning that such negotiations risk "subordination" instead of true sovereignty.

The US and EU are each other's largest trading partners, exchanging more than €1.6 trillion ($1.9 trillion) in goods and services in 2024, roughly one-third of all global trade. Analysts say that retaliatory tariffs could disrupt global markets, affect corporate investment decisions, and further strain diplomatic relations.

The situation remains volatile as President Trump continues to pursue Greenland-related ambitions ahead of his delayed visit to the World Economic Forum in Davos.