Trouble on the global trade policy horizon
Concern is growing for global trade policy. Historically speaking, this is unsurprising as periods of two or more rivals fighting for geopolitical supremacy are usually associated with growing tensions and increased protectionism.
Director-General Anders Ahnlid comments on the current state of global trade policy.
Concern is growing for global trade policy. Historically speaking, this is unsurprising as periods of two or more rivals fighting for geopolitical supremacy are usually associated with growing tensions and increased protectionism.
This can also be seen as China’s challenges the United States, which have consequently led to the US recently imposing 100 per cent tariffs on imports of Chinese electric cars. The EU is following suit, albeit in its own way, with lower-level tariffs. At the same time, we are waiting with bated breath ahead of Donald Trump’s potential return to the US presidency; he has already been threatening sharp increases on all import tariffs, including those for the EU.
Recently, several countries have been moving further away from the rules-based trading system centred on the World Trade Organization (WTO), which was established 30 years ago to contribute to economic efficiency. Instead, more measures that restrict free trade for real or alleged security policy reasons have been introduced.
This development has been accelerated by the Covid-19 pandemic, Russia’s war against Ukraine, and the conflicts in the Middle East that have disrupted international supply chains in various ways.
This poses significant challenges for the EU’s common trade policy, which as of this autumn will be designed with a new commission and trade commissioner at the helm and a new European Parliament as sub-decision maker.
Efforts are being taken to act against state-supported Chinese exports that risk distorting international competition, alongside the ambition to prevent trade from being used as a weapon.
Geopolitics will take centre stage. The EU must continue to lead the allied democracies’ support for Ukraine, which includes imposing economic sanctions to further hinder Russia’s acts of war.
Simultaneously, the support from authoritarian regimes to Russia must also be addressed. This becomes a central issue in terms of China. Efforts are being taken to act against state-supported Chinese exports that risk distorting international competition, alongside the ambition to prevent trade from being used as a weapon.
The EU’s trade policy officials face no easy task.
Regardless of the outcome of the US presidential election and the USA and Chinese relations to each other and the outside world, certain guidelines that should be followed when formulating EU trade policy.
- First, Article 206 of the Treaty on the Functioning of the Union stipulates that the EU’s common trade policy must contribute to “the progressive abolition of restrictions on international trade and on foreign direct investment, and the lowering of customs and other barriers.” The treaty also applies in times characterised by geopolitical tensions.
Measures to liberalise trade have historically been effective security policy instruments. The idea that trade between allies is advantageous for security policy formed the basis for both the WTO and the EU. - Second, EU trade policy needs to be evidence-based. The troubled surrounding world does not change the conditions for creating trade profits. Nothing is as practical as good theory. Classical and modern trade theory clearly show that trade without barriers optimises economic profits. Deviations from free trade are associated with costs and must therefore be well justified. Restrictions on trade for security policy reasons are of course warranted – if they are necessary and designed so that they achieve their security policy objectives.
Trade barriers to satisfy protectionist vested interests are not. Actions against trading on ‘unfair’ terms pose a particular challenge and need to be handled with care. The three different cases must be taken into account individually and with care when the EU’s trade policy is chiselled out. - Third, the EU’s trade policy should continue to vigorously protect the WTO, however the US and China may distance themselves from the Organization. Thanks to the WTO’s regulations, global trade has been well maintained in recent years, despite all the crises, trade negotiations in the Organization having come to a standstill, and the fact that many have wanted to proclaim the death of globalisation.
Had it not been for the WTO’s regulations, the delivery of protective equipment and production and distribution of vaccines during the pandemic would not have been as successful as it was. The WTO estimates that world trade will increase by 2.6 per cent in 2024 and 3.3 per cent in 2025.
Trade with China continues to be significant, despite justified restrictions in some sectors. Globalisation is not dead, but it has changed since its height of glory a few decades ago. The WTO rules are still of great importance, not least for a large number of developing countries, which rely on international trade for their development. - Fourth, the EU should continue to develop its network of free trade agreements with reliable partners. At the same time, the EU needs to adapt its ambitions to the conditions of its partner countries’ more than before. So far, the EU’s negotiating goals have always been comprehensive. They have included ambitious targets in areas not directly affected by trade regulations, for example environment and labour legislation.
The EU has endeavoured to “export” its regulatory system in these areas. The ambition is admirable, but it does not lead to the desired results. If we are to achieve free trade agreements with important partner countries such as India and Indonesia, the EU must be prepared to revise its objectives based on the conditions of the partner countries. The EU must accept that the Union’s preferences and goals are not shared by everyone. The development of security policy is another reason to deepen the EU’s current free trade agreements and to enter into new ones.
Positive trade relations with a large number of countries increase the likelihood that the EU will have access to necessary products in a tougher global situation. In terms of trade relations between trusted partners, the relationship with the US remains disappointing. The political conditions for a free trade agreement between the EU and the US are currently non-existent - at the same time, this is perhaps the most important missing link in the transatlantic security policy architecture. - Fifth, the EU should consider its own measures for liberalising trade to improve its competitiveness. Research findings are clear: good access to imported products improves competitiveness. Countries such as Canada and Switzerland have led the way by abolishing import duties on industrial goods in various ways to improve the conditions for business to succeed internationally. The EU stands to gain a lot by doing the same.
Anders Ahnlid
Director-General
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