There is a lot of attention for the trade wars and protectionism unleashed by US President Donald Trump. Commentators rightly point out the damage this is doing to global trade and at the higher prices of products and services that will result from it. Not as much wrath has been reserved for the European Union in recent years, despite the fact that the EU has been on its own protectionist roll.
For a long time already (really since the start of the project), apart from lots of free trade aspects, the EU project has contained protectionist elements, with its common external tariff. While the United States is about as guilty as the EU when it comes to protectionism, on things like agriculture and car import duties, the EU has much higher tariffs than the other way around.
When it comes to opening up external trade, the EU was relatively successful up until the Brexit vote in 2016. Since then, the EU has struggled to negotiate a lot of material opening of trade. Part of the reason is that the EU has increasingly tried to overload trade negotiations with all kinds of attempts to impose its specific regulatory choices.
The Commission’s solution to any problem seems to be jointly issued debt
This is, for example, the reason that the EU-Australia trade deal failed in 2023. At the time, Karl Haeusgen, president of German machinery producers association VDMA, complained that the negotiations failed over the “ridiculous issue” of sheep meat and beef production. He thereby lamented the overly large influence by agricultural interests on trade deals, which he called “completely disproportionate to the economic importance of agriculture in Europe.”
The agreement between the EU and Latin American trade bloc Mercosur was held hostage by the same issue. During the negotiations, the EU suddenly came up with new demands to impose all kinds of environmental standards on Latin American trading partners. The deal still requires ratification by EU governments, even if France is becoming less negative about it, due to Trump’s trade war.
How the EU treats its close neighbours
Yet more evidence of growing EU hostility to trade is visible in the way the EU has been treating two close economies: Switzerland and the UK. Instead of updating the series of bilateral trade agreements concluded between the EU and Switzerland in the 1990s, the EU is trying to use those negotiations to force through its own top court as the ultimate arbiter, if indirectly, which would be like the United States insisting that in case of a dispute between the EU and the US in the context of a transatlantic trade deal, the Supreme Court should have the last say.
During Brexit negotiations, the EU did not even hide the fact that it considered granting trade openness as a “concession”, suggesting European companies and consumers enjoying less restrictions on EU-UK trade was a bad thing. In the case of Brexit, the EU’s obsession to impose both its regulatory choices and its own top court made things far more complex than they should have been.
To be fair to the EU, bizarre attempts by UK PM Theresa May to shackle the UK to the EU’s trade policy also delayed the whole process. Only after her plan was voted down three times by the British parliament, a deal between the EU and the UK was eventually reached. Interestingly, the deal contained quite a bit of flexibility, amounting to a “pick and choose” arrangement, whereby Britain received limited market access in return for being able to almost completely diverge in terms of regulation, despite endless tiresome cries by eurocrats that such a deal was not on the table for Britain.
With the first von der Leyen Commission, the EU doubled down on its aggressive approach to force trading partners to accept its regulatory choices, by rolling out a number of “green” regulations that effectively act as “non-tariff barriers”. One of these is the EU’s new CSRD directive, which forces companies to report on their environmental footprint and exposure to climate risk. Another one is the EU’s due diligence directive, which requires companies to identify and address both environmental and social harms in their supply chains.
The Trump factor
In US business circles, this has raised great concern and is now being challenged by the new American administration. “Donald Trump is America first. And if there is any example of a foreign regulation that puts America last, it’s the EU’s [climate agenda],” Republication US Congressman Andy Barr has warned, complaining about the EU’s “regulation factory.” He vowed: “An America first agenda will animate ferocious opposition to a European Union that attempts to impose their costly, burdensome regulations on American firms.”
The Trump administration is specifically pushing back against the EU’s non-tariff barriers. For example, the US Trade Representative (USTR) wants the EU to scrap its deforestation regulation, arguing that the imposition of new bureaucratic obligations on imports of products such as livestock, cocoa, palm oil and rubber, will cost US agriculture and industry exports $8.6 billion a year.
Vestager did not only ignore EU rules. She abused the EU ban on state aid in order to go after US big tech
This type of legislation is a good example of how the EU tries to impose regulatory choices on its trading partners, thereby undermining good trade relations. First, it was Southeast Asian palm oil exporters Malaysia and Indonesia that complained about this. These countries consider it particularly unfair that, despite the fact that NGOs have praised them for achieving a significant reduction in deforestation, the EU continues to refuse to recognise their standards as equivalent. This is despite the fact that the most recent version of the Malaysian anti-deforestation standard MSPO is even stricter than the European one.
After Brazil and the United States — at the time still with Joe Biden as President — also began to complain, the EU was forced to postpone the entry into force of the legislation by one year. Now with Trump complaining about it,the whole series of new green EU regulations passed during the first term of Ursula von der Leyen as Commission President may come in handy now. The EU could now offer them to Trump as sacrificial lambs to be offered in exchange for tariff relief. European socialists are not exactly looking forward to this, but their weight has drastically been reduced by EU voters in last year’s European Parliament’s election, as we can witness increased cooperation between the centre-right and right-wing populist forces there. Also, the EU Commission seems open to discussing scrapping non-tariff barriers.
Beyond Trump
Already before Trump’s election, there was a problem with the EU diverting its trade policy for other purposes. In 2024, the EU Commission’s top trade official, Sabine Weyand, admitted as much. In a speech for the Institute of International and European Affairs, she remarked that trading partners are increasingly questioning EU’s use of trade policy to act as a “global regulator”, stating:
“We have pushed away a number of partners we need through our increased use of autonomous trade measures; unilateral measures that other countries see as imposing on them extra-territorial effects of our legislation. ( … ) There are huge concerns. So we need to think about our attractiveness for our trading partners. We have to take a proper cooperative approach.”
On top of the EU’s green protectionist regulations, the EU has in recent years also come up with a new tariff regime, called the Carbon Border Adjustment Mechanism, or “CBAM”. The idea behind this is that because the rest of the world is not copying the EU’s expensive climate policies, certain imports into the EU need to be burdened with tariffs, as a means of compensation. The likes of India have been strongly protesting against this measure, arguing that it violates the rules of the World Trade Organisation, but in the media, we have seen little about this.
Domestic protectionism
Furthermore, in recent years, the EU has also increasingly neglected its job to combat domestic protectionism between EU member states. The EU treaty guarantees the free flow of goods, persons, services and capital, but the European Commission seems less and less interested to police the terms of the Treaty. In 2023, the Financial Times reported that EU Commission action against internal market infringements had fallen by 80 per cent between 2020 and 2022, causing business groups and some member states warning that the single market project is “at risk”.
Three years ago, the Commission was even officially reprimanded by the European Ombudsman for not taking any action against protectionism practised by German Länder.
Danish politician Margrethe Vestager has served for ten years as the EU Commissioner responsible for competition policy. Already when she entered office, in 2014, she blatantly stated that she found it “natural that competition policy is political.” This kind of politicisation of enforcing the rules of fair competition is, of course, the last thing the EU needs.
Things went from bad to worse during the Covid crisis, and they haven’t improved since. As a result, EU member states now shamelessly hand out large-scale subsidies to counter the threat of deindustrialisation resulting from high energy prices — which in itself is the result of EU (climate) policy and large-scale experiments with energy supply.
Abusing internal market rules for protectionism
Vestager did not only ignore EU internal market rules. She also abused the EU ban on state aid in order to go after US big tech, for example against Apple. Vestager lost a few of these cases at the top EU court, as the General Court, the lower court of the European Court of Justice (ECJ), which is the EU’s top court, declared in 2020 that the Commission failed to prove “to the requisite legal standard” that Apple enjoyed preferential treatment which would have amounted to illegal state aid.
Going after American companies in a bid to get them to pay more taxes, all based on grey areas in legislation, while ignoring clear violations of EU law, even led her to be dubbed the “EU tax lady” by US President Trump during his first term. Perhaps it would be fair for Vestager to pursue tax rulings when she would also go after clear violations of the EU’s ban on state aid, but that clearly wasn’t the case here.
The push for a debt union
The fish rots from the head. European Commission President Ursula von der Leyen does not play a very positive role in all of this, either. Rather than encouraging her Competition department to take its role seriously, von der Leyen has proposed subsidies at the EU level, in the form of a “European sovereignty fund”. Thankfully, member states have watered this down, for now, but the Commission will certainly try again.
In that respect, the Commission is not only pushing for more EU spending, but also for more jointly issued debt. It looks like the Commission’s solution to any problem, ever since member states agreed in 2020 to financing the EU’s scandal-prone Covid Recovery Fund with jointly issued debt.
At the time, one of the hold outs was the Netherlands, then led by Mark Rutte, who vowed that it would be a one-off. It is, however, unlikely that member states will simply repay the debt to the EU Commission, or that the Commission will receive tax powers to get the cash directly from EU citizens. Most likely is that the Commission will be permitted to take out a new loan to pay back the old loans, which is effectively the standard procedure for member states to finance themselves. In that context, it comes in handy to have a Central Bank eager to suppress interest rates or — God forbid — even buy the debt in case there is insufficient interest.
For the European Commission, any crisis is good enough to push its project for joint debt issuance. The latest example is its plan to “rearm Europe”. The Dutch Parliament has voted against this idea in a resolution, but it is unlikely that the Eurocrats will simply drop it, given how it would effectively amount to a great transfer of power and influence to the EU level.
It has often been said that the EU started as a peace project. Whilst correct it is rarely explained that the method used to achieve peace is the removal of barriers to trade. The assertion “When goods do not cross borders, armies will” is accurate (even if already on the eve of the First World War, there was a lot of interaction and trade between countries). Together with American military protection, the EU therefore deserves credit for having reduced the chances of war in Europe but by abandoning its core business to open up trade, the EU is violating its own core values.
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