Europe’s secret ‘big bazooka’ could be a key retaliatory tool against Trump’s new tariffs

• President Donald Trump imposed a 20% tariff on all imports from the Europe Union. While the EU aims to strike a deal with the U.S., the bloc has a secret weapon up its sleeve called the Anti-Coercion Instrument. If enacted, the instrument could impose significant economic sanctions on U.S.-based companies within Europe.

President Donald Trump implemented a 20% all-encompassing tariff on the European Union Wednesday, but the bloc has “a strong plan” in its back pocket to pressure the U.S.

On "Liberation Day," Trump imposed a minimum 10% tariff on numerous countries to “make America wealthy again.” Trump also revealed a sweeping 20% tariff on all imports from the EU. European Commission president Ursula von der Leyen has previously said she is confident in the bloc’s ability to stand up for itself, and hopes to strike a deal.

“Europe has not started this confrontation,” von der Leyen said during a speech Tuesday in the European Parliament. “We do not necessarily want to retaliate, but if it is necessary, we have a strong plan to retaliate and we will use it.” 

That plan could involve the Anti-Coercion Instrument (ACI), allowing the bloc to place market limitations on service companies that could hit American tech or Wall Street. Put in place in 2023, the ACI allows the bloc to respond to coercion through diplomatic means by any retaliatory measure necessary like import or export restrictions or limitations on access to the European market.

“It’s called the big bazooka,” Fabrizio Pagani, a partner at the investment bank Vitale and a former top economic official in Italy, told DealBook. “I personally think the big bazooka should be used first of all as a deterrent. So put it on the table, and let’s negotiate,” Pagani said.

According to a preliminary plan obtained by DealBook, in response to tariffs, the EU officials have brought up the possibility of implementing ACI to limit American banks’ ability to access the bloc’s public procurements market, essentially barring banks from projects worth $2.18  trillion each year. Additionally, the plan suggested targeting the roughly $327.02 billion annual flow of European investment into American companies. 

“It’s more the nuclear option,” global economist for ING Carsten Brzeski told the New York Times.

Use of the instrument could escalate the trade war and some experts believe this would further impact consumers. 

“Tariffs on services, just like tariffs on goods, hit consumers and businesses directly,” Joachim Klement, the head of strategy at the investment bank Panmure Liberum told DealBook. 

“You are just putting fuel on the stagflationary fire,” he said.

While the EU seeks to find a solution to Trump’s tariffs, the bloc has yet to publicly get the president to the negotiating table.

“We have the largest single market in the world,” von der Leyen said. “We have the strength to negotiate. We have the power to push back.” 

“All instruments are on the table.”

The possibility of enacting the ACI has been a common refrain from EU officials amid the ongoing trade war between the EU and U.S as both a point of leverage and as a way to gird against Trump’s trade policies.

“We have an Anti-Coercion Instrument, and we will have to use it,” Agriculture Commissioner Christophe Hansen told Politico in Paris, France, following Trump’s comments about the EU being created to “screw” America.

Meanwhile European Commission trade minister Maros Sefcovic, has named ACI as an option to “protect” the EU market.

This story was originally featured on Fortune.com