France wants the European Union to consider deploying its most powerful retaliatory measure against the United States for the first time ever if President Donald Trump uses tariffs to unfairly force the bloc into policy changes.

France has joined a small group of E.U. countries that believes the so-called anti-coercion instrument — a tool designed to strike back against nations that use trade and economic measures coercively — should be on the table, according to people familiar with the matter, even if it isn’t the preferred course of action, one of them said.

The U.S. plans to impose sweeping tariffs on global partners as soon as April 2. Trump has said the duties will rectify non-tariff barriers that he says are unfair, such as domestic regulations and how countries collect taxes, including the E.U.’s value-added tax. The E.U. says its VAT is a fair, non-discriminatory tax that applies equally to domestic and imported goods.

The anti-coercion instrument, which is subject to a number of conditions and steps, would eventually allow the E.U. to deploy a broad range of retaliatory responses, including restrictions on trade and services as well as certain intellectual property rights, foreign direct investment and access to public procurement.

The euro briefly fell below 1.08 against the dollar for the first time in two weeks while German bonds edged higher to leave the 10-year yield two basis points lower at 2.76 per cent.

Trump escalated a global trade war this month by imposing a 25 per cent tariff on steel and aluminum imports, which led the E.U. to announce its own retaliatory duties on up to €26 billion (US$28.1 billion) of politically sensitive American goods. The impending reciprocal tariffs, which would be customized for each trading partner to offset any perceived disadvantage for American companies, could dwarf the metals duties.

The European Commission, the E.U.’s executive arm which handles trade matters for the bloc, is not currently considering the anti-coercion instrument, said another person, who spoke on the condition of anonymity.

Another person said any discussions on using the tool were distant as the E.U. first needed to see what tariffs the U.S. announces on April 2 and whether the anti-coercion instrument was applicable.

The E.U.’s trade chief, Maros Sefcovic, said on Wednesday that he has no details on the new U.S. tariffs, and that the commission will need to continue preparations and maintain a flexible approach. Because of that, the E.U. isn’t expected to immediately set out its response to Trump’s coming measures as quickly as it did with the metals dispute, one of the people said.

Sefcovic also announced that bloc’s response to the metals tariffs will slip to mid-April, a move that would provide more time to negotiate with the U.S. Commission president Ursula von der Leyen and her chief of staff have so far failed in attempts to engage with Trump directly. The U.S. president has repeatedly attacked the E.U. saying it was formed to “screw” the U.S.

The anti-coercion instrument was designed primarily to deter, and if needed respond to deliberate coercive actions from third countries that use trade measures as a means to pressure the sovereign policy choices of the bloc or individual member states. Countermeasures are envisioned only to be used as a last resort and must be commensurate to the level of the injury.

The instrument was enacted as part of the E.U.’s effort to boost its trade defences after the U.S. imposed tariffs on the bloc’s exports during the first Trump administration. Another factor was China’s decision to place restrictions on Lithuanian goods after Taiwan opened a trade office in the Baltic nation.

The commission can propose use of the tool but it is then for member states to determine whether there is a coercion case and if it should be deployed. Throughout the process the E.U. would seek to consult with the coercing party to find a resolution and may also collaborate with like-minded partners facing similar pressure.

—With assistance from Ania Nussbaum.

Bloomberg.com