In the past decade, the EU has shown the world its ability to struck ambitious trade deals and to create the conditions for win-win agreements. Today, its trade policy is endangered by the threat of a trade war initiated by the United States, the EU closest ally and main trade partner.
Since its origins, and with an intensification in the past decade, the EU has been advancing in a number of trade talks because of its members’ commitment in creating a shared economic agenda. The Lisbon Treaty (in place since 2009) has strengthened the foundations of a Common Commercial Policy, which is now widely implemented. Also, after Lisbon, EU countries have realized how convenient it is to negotiate under a shared trade policy which fosters EU exports and protects domestically strategic sectors from foreign competition. For example, while extensive farming has not been protected by recent trade deals, local productions have been shielded from foreign competition through the creation of the Geographical Indications system, introduced in the EU-Canada trade agreement.
Despite the success of the EU trade policy and the number of ongoing negotiations that the EU is currently leading, today the Union faces new challenge. As a matter of fact, its trade policy could be jeopardized by growing uncertainty on the world stage caused by the threat of an extremely damaging tit-for-tat-trade war prompted by the United States.
Donald Trump’s unconventional and unpredictable approach to trade issues is creating a fracture in the multilateral trading system that could have immediate and damaging consequences for the global economy. By pursuing its new trade policy, the US has mistakenly taken the view that trade represents a zero sum game where there are always winners and losers, and it is trying to bring in on its side as many countries as possible. This rejection of multilateralism is exactly what the EU has been fighting against. Through its successful policies and trade agreements, the EU has demonstrated that such cooperation system is the optimal solution to progress in trade talks. Indeed, trade cooperation can induce win-win outcomes, as over sixty years of multilateralism – albeit imperfect - have shown.
In the coming months, the EU will need to defend its trade approach. Developing and implementing a beneficial commercial policy is not only an exclusive prerogative of the EU. It is also a common interest of all its members. EU countries prosper because of their open economies. Such prosperity would be hindered if a new wave of protectionism were to occur. Europe should then guarantee that the markets are maintained open, and that fair competition is encouraged, even at the cost of reducing some barriers if the Trump administration does not give up on the introduction of new tariffs.
But, if the US were to start a trade war, the EU would have to put in place a tough system of retaliatory measures on imported American goods and services. This is crucial to remind the Trump administration that the one to pay the highest price for restricted trade is the country that begins to shut down its own market, imposing non-necessary and self-inflicted damages to its economy.
In order to do so, the EU needs to strengthen its ability to build a shared political agenda. In recent times, European countries have shown unity in pursuing economic interests, but it is time for them to upgrade the Union and find political issues to agree upon. Political unity is a necessary condition to handle the confrontation with the US.
Until then, Europe will struggle to deal with the current intensifying trade war, mainly due to its political roots. It risks to position itself as a mere follower of the Chinese leadership in the confrontation with the US.
Instead, while China has been working hard to position itself as a pillar of the current multilateral system without actually showing any sign of trade openness, the EU should be able to show how, despite its insecurities, is the real pillar of multilateralism.