Oscar Guinea / May 2024
Image: Shutterstock
This is not the best of times for free traders and supporters of globalisation. The US imposed a 100 percent tariff on Chinese electric cars; industrial subsidies are proliferating across all developed countries; and international norms and organisations, set up to limit the spillovers of these policies, are a shadow of their former self. No wonder why The Economist newspaper wrote that the liberal international order is breaking down.
At the same time, there is no question that international trade is an asset, not a liability, when confronting some of the most pressing policy challenges in Europe: competitiveness, climate change, and economic dependencies. True, countries can tackle these challenges on their own, but they are likely to fail and pay a heavy price for this mistake.
The European Union is a case in point. Trade is a central plank in the economic development of many European countries with a population and domestic markets relatively small when compared to global standards. International trade allows European companies to tap into the consumer demand of other countries, boosting company growth, and buy cheap and better inputs from elsewhere to maintain their leading position. A transatlantic comparison helps us put this argument into context. As a share of GDP international trade represented 51 percent of EU’s GDP but only 28 percent of the US.
During the last five years, EU trade policy has been mostly inward-looking. The EU has focussed on developing a new arsenal of defensive trade weapons, which has already started to deploy (International Procurement Instrument and the Foreign Subsidies Regulation been two examples). There is little doubt that the next European Commission will spend a significant portion of its energy unwrapping these new instruments and put them to use.
However, defensive trade policies will do little to address the challenges mentioned earlier afflicting the EU: competitiveness, climate change, and economic dependencies.
Fear not! In a recent ECIPE Policy Brief, we outlined seven recommendations designed to secure higher levels of market access abroad and make the EU more resilient. These recommendations are feasible and do not require a radical shift in the Union’s current trade policy strategy. They are not low-hanging fruits either, but they offer a clear path forward for the EU.
- Modernise existing FTAs and conclude agreements with Mercosur, Australia and the ASEAN countries.
- Negotiate Mini deals.
- Expand the adequacy framework for regulation.
- Join the CPTPP.
- Deepen Trade and Technology Councils (TTCs) with US and India.
- Deepen Neighbourhood Policies on raw materials.
- Initiate a trade resilience coalition.
While protectionist trends dominate headlines, international trade remains essential for the EU’s economic well-being. Open markets and diversified suppliers are crucial for economic growth and economic resilience. The tenet of the EU’s Strategic Autonomy is about doing what it is right for the EU. This belief also applies to opening markets and diversifying suppliers through trade policy, independently of what other countries do.
