Report: An EU trade policy for geopolitical ends

Do geopolitical considerations require an EU trade policy that limits trade and economic integration to a greater extent than today? In light of increased geopolitical tensions, the National Board of Trade has analysed the connection between trade and security. In the report, we discuss the merits of different EU trade policy strategies to advance geopolitical interests and to promote security. Per Altenberg, the author of the report, tells more.

This report is about geopolitics, security policy and trade policy. How are they connected?

Trade with other countries strengthens the EU economically by giving EU firms access to input goods and services, knowledge, technology and capital that enhance industrial productivity. Openness to trade and investment also stimulates processes that allow the most productive EU companies to grow and scale up. A more productive economy strengthens the EU geopolitically, which in the end can enhance national and EU security. Research discussed in the report furthermore shows that, under most conditions, economic integration has a moderating influence on great power relations and a stabilising effect on security.

Why has the National Board of Trade looked into this?

In recent years, there has been a shift in the EU debate towards the notion that strategic EU interests can be achieved by introducing measures that restrict or distort trade with other countries. This notion runs the risk of ignoring fundamental insights from economics as well as the vast literature on the benefits of economic interdependence from a security perspective. The purpose of this report is therefore to analyse how EU trade policy could be applied more effectively for geopolitical ends.

What are your most important conclusions?

Our report shows that geopolitical tensions have indeed increased, but that the answer is not to pull up the drawbridge and limit economic exchange. The EU's historic strategy of promoting peace and security via economic integration should not be abandoned because we enter a new era of rising geopolitical tensions. While genuine security threats sometimes require discrimination of foreign interests, for example through sanctions, it is important that approaches and concepts used in security policy are not casually transferred to the field of trade and investment.

Rules-based multilateralism remains the first-best option for the EU to deepen economic integration. If the multilateral course is blocked, however, the most realistic alternative is alliance-building with partners that have similar trade policy objectives and perceive global challenges similarly. Rather than a hub-and-spoke structure, a larger cohesive area that links EU free trade agreements to each other could be envisioned. Strategically, the idea would be to create an extension of the leverage provided by the single market together with like-minded partners. While the EU is not in a position to shape geopolitics or globalisation on its own, a larger area of like-minded partners would have sufficient attraction to achieve this. Besides neighbouring countries, candidates for such a strategy are countries with which the EU has concluded or is about to conclude FTAs. From a geopolitical perspective, it is also important that the EU explores ways to deepen transatlantic economic integration, potentially via a new EU-US trade agreement.

With respect to China, the report recommends a multifaceted EU strategy that emphasizes challenges related to China’s state-capitalist system as well as the benefits of economic interdependence. Whether from a trade policy or a security policy perspective, economic "decoupling" is not desirable for the EU.

You highlight the EU experience as an example of when economic integration supports security policy objectives, can you develop this?

Historically, the EU has applied strategically motivated economic integration not only internally but also in relation to neighbours. This strategy has produced an unprecedented period of peace and stability in Europe. It has also strengthened the EU and its member states geopolitically compared to a counterfactual ‘non-Europe’. As an example, EU membership perspectives have contributed to stability and reconstruction in the Western Balkans after the devastating wars of the 1990s.

The report also finds support for the view that expectations about future trade integration determine how effective economic integration can be from a security perspective. Integration should therefore be an ongoing process. When EU accession talks stall, this is unfortunate, not only because expectations about future trade integration aren’t met, but also because it allows other great powers to expand their influence in the EU’s neighbourhood, particularly in the western Balkans. Renewed efforts to advance EU accession or close integration with neighbouring countries are therefore desirable from a geopolitical perspective.

You are critical of the term open strategic autonomy as well as a strategy based on more unilateral trade policy action by the EU. Why?

We say that the term "open strategic autonomy" provides insufficient strategic guidance, given its wide-ranging definition. Other parts of the trade policy review give better and clearer guidance on how the EU can use trade policy for geopolitical purposes.

Unilateral, discriminatory measures should therefore not be imposed without an assessment of the magnitude of the distortion the measure is intended to correct, their effectiveness in achieving stated objectives, their overall welfare effects, administrative costs for firms, and whether the measure is likely to produce countermeasures by other countries.

What are your conclusions based on?

They are based on a review of the academic literature on trade and security policy, as well as the interaction between the two fields.