Maybe, according to Wall Street analysts.
Trump is not likely to take this lying down. Klement wrote on his Substack: “Of course, these actions will trigger an escalation by Trump in the short term, which is why some EU leaders like Friedrich Merz of Germany are currently trying to soften the EU’s response.
“But 2025 also has shown that if countries remain firm, the escalation cycle ends within a couple of weeks and Trump rows back (or should I say ‘chickens out’?) once he realises he can’t bully others into submission,” he wrote.
At Macquarie, the analysts warned that a comprehensive package of economic sanctions against the U.S. would increase price inflation in America. “The EU has the capacity to retaliate economically, and may do so in the hope that a firm EU retaliation (to threats or military action by the U.S.) will end the escalation cycle after a few weeks, and that this is a risk worth taking. What can the EU do, actually? The EU can do enough to hurt the U.S. economy and U.S. security, and these the trade-related measures would likely be jointly inflationary,” they said.
The ACI “bazooka” won’t hobble the U.S. but it could hurt, Tombs and Allen say. “U.S. services exports to the E.U. were $295bn in 2024, equivalent to 0.9% of U.S. GDP, suggesting the harm could be much greater if the E.U. pulled this relatively new lever at its disposal than if it responded simply with tariffs, though its economy would be hurt more too,” they told clients.
