Former US President Donald Trump’s plan to impose new tariffs on European imports could spark an unconventional response from the European Union—one that targets American digital services rather than traditional goods, according to a recent report from Goldman Sachs.

Rather than engaging in a tit-for-tat tariff battle on physical products, the EU may leverage its growing trade deficit in services to push back against Washington’s trade measures. With US tech giants generating billions in revenue from European markets, Brussels could consider new digital restrictions to counterbalance the economic impact of Trump’s proposed tariffs.

A Renewed Transatlantic Trade War?

Trump’s announcement last week that he intends to introduce “reciprocal tariffs” has heightened fears of escalating trade tensions between the US and Europe. The Goldman Sachs report, authored by economists Giovanni Pierdomenico and Filippo Taddei, predicts that Washington could increase duties on European car exports by 25 percentage points and impose a 10% tariff on a range of key imports, including metals, minerals, and pharmaceuticals.

These tariffs, if implemented, would affect €190 billion worth of EU exports, accounting for nearly 40% of the bloc’s total shipments to the US.

Historically, the EU has responded to similar trade pressures with countermeasures of its own. When Trump imposed tariffs on European steel and aluminum in 2018, Brussels retaliated by levying duties on iconic American products such as bourbon whiskey and motorcycles. A second round of tariffs was planned but ultimately put on hold, awaiting a World Trade Organization ruling.

This time, however, EU policymakers are expected to proceed with caution.

“We expect the EU to favor a de-escalation of trade tensions as much as possible and resort to strong retaliation only as a last resort,” the Goldman Sachs report noted.

A New Battlefield: The Digital Economy

Unlike in 2018, the EU now has an additional tool at its disposal—the Anti-Coercion Instrument (ACI), a recently introduced mechanism designed to counteract economic pressure from third countries. The ACI allows Brussels to impose tariffs and restrict access to European markets in response to coercive trade actions.

One area that could be targeted is the digital economy, where the EU runs an annual trade deficit of nearly €150 billion with the US. This imbalance is largely due to the dominance of American tech companies, which generate substantial revenues from European consumers while repatriating their earnings through low-tax jurisdictions like Ireland.

According to Goldman Sachs, the EU may look at restricting digital transactions, such as IT service royalties flowing back to the US, as an alternative to directly imposing tariffs on American goods.

“Services imported by the EU from the US span different sectors, including the financial sector, but the lion’s share are IT services that are then invoiced as royalties channelled to the US from Ireland,” the report stated. “Any restrictions on these transactions could have a meaningful impact on the services trade balance.”

The Challenges of Retaliation

While targeting US tech firms could be an effective countermeasure, any action under the ACI would require approval from at least 15 of the EU’s 27 member states—a process that could delay or complicate Europe’s response.

For now, European leaders are closely monitoring Trump’s next steps. If his administration moves forward with its planned tariffs, Brussels will have to decide whether to retaliate with direct duties on American products or take a more strategic approach—one that could see Silicon Valley caught in the crossfire of a transatlantic trade war.