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I assume that there is the threat of targetted tariffs and cancelled government contracts to "encourage" European companies to comply.

I haven't read the executive orders but I also assume that they contain more details.

There was executive order that no federal institution can hire layers from a company that sued Teump. And no federal institution can hire a company that do business with the hated law company either. And he removed their security clearance.

So, that is it works. By threat and ability to destroy you, legally or not. Same as everything else - if you have power to harm and no stops, you can blackmail.

This is about european subcontractors of US companies that have federal contracts. Any european company that does not get money from the US government is not affected.