EU Trade Policy at a Crossroads

By
Pieter Cleppe
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At the end of March, the European Parliament approved the trade agreement concluded between the EU and the US last summer to stabilise their trade relationship following years of escalating trade tensions and US President Donald Trump’s tariff war. Under the agreement, the US agrees to a 15 per cent tariff cap on most European exports, in exchange for lower or zero import duties from the EU on certain US products. The agreement runs only until March 2028 and provides a potential “emergency brake” for the EU to intervene should Washington fail to comply with the terms or in the event of a “harmful” increase in imports from the US.

In any case, the approval brings a degree of calm to the turbulent relationship between the two trading partners, at least in the trade sphere. On the geopolitical front, Trump continues to threaten European NATO member states with reprisals, as he believes they are not helping him enough in his war against Iran. In practice, transatlantic trade has actually grown over the past year, despite Trump’s tariff war. The so-called European ‘surplus’ in goods exports to the US – a thorn in Trump’s side – did, however, shrink by 8 billion in 2025, which of course has a great deal to do with sky-high European energy prices, which burden industry with a significant competitive disadvantage.

The EU – Australia deal

Furthermore, there was more good news regarding European trade policy. Following the approval of the Mercosur agreement with Latin American countries at the end of 2025 and with India at the start of this year, European negotiators succeeded in March in finally concluding a trade agreement with Australia as well. The sectors set to benefit most quickly from this are machinery, the automotive industry and the chemical sector. Their import tariffs will immediately drop to zero upon the agreement’s entry into force. European agricultural producers will also gain greater access to the Australian market, making it easier for them to import items such as cheese, wine, confectionery, chocolate, sugar and various dairy products, whilst Australia will recognise European protected geographical indications.

Australian companies will also benefit from this, as 98% of the value of exports to the EU will be exempt from import duties. Agricultural products from Australia will also gain better access to the European market, with European farmers in particular fearing increased competition from Australian beef, which will receive an additional 30,600 tonnes of preferential access.

Copa-Cogeca, the main European agricultural lobby, has already reacted negatively, stating that the European agricultural sector has “once again been used as a bargaining chip” in the EU’s trade strategy. Just as with the Mercosur agreement, which is set to enter into force provisionally on 1 May, the agricultural sector – or at least the section of it that opposes this – is, however, being sidelined, particularly as the agreement with Australia is also expected to enter into force provisionally once the European Parliament and the Member States have given their approval.

The farmers’ grievances must, however, be met with understanding. After all, their sector is heavily regulated in Europe, not to mention centrally planned. The response to this, however, must be to scale back excessive European regulation, and not to open up trade between close geostrategic allies such as Australia.

The call by Flemish Minister for Agriculture and the Environment Jo Brouns (CD&V) for a major relaxation of various European environmental directives is welcome in this regard, and far more constructive than scuppering trade agreements that are difficult to negotiate. Brouns focuses in particular on the European Water Framework Directive, the Habitats Directive – which led to the nitrogen problem – and the Nitrates Directive, which forms the basis for successive fertiliser action plans. In addition to the Minister’s valid point that all this excessive regulation leads to “disproportionate economic and social costs, with limited added value for the environment”, the question is, first and foremost, why all this should be decided at European level. Nature conservation is, after all, pre-eminently a local matter, and it should be up to democratically elected national governments to determine the right balance between the economy and nature conservation, not to the supranational bureaucratic apparatus of the European Union. The EU should confine itself to monitoring whether national environmental rules constitute disguised protectionism.

MEP Johan Van Overtveldt emphasises that Trump’s policy is the driving force behind progress on European trade agreements. He states in an analysis: “The US remains an important trading partner, but Trump’s actions have accelerated other trade agreements. [This] [also] gives our companies access to a broader market.”

For Europe, this is the right strategy. However, David Henig of the ECIPE think tank emphasises that the European Union itself is also “among those seeking to weaponise trade.” He argues: “Brussels tried to deliberately weaponise the Brussels Effect in using its market power to force other countries to follow its regulations, failing because businesses pushed back against higher costs. Now it faces an internal split with outright protectionists pushing on steel and cars among others.”

EU protectionism

One need not look far to find EU protectionism. There have always been customs tariffs, massive agricultural subsidies and regulations tailored to large European companies, partly intended to keep newcomers out of the European market. Recently, the controversial European “Carbon Border Adjustment Mechanism” (CBAM) was added to this. This EU climate tariff is imposed on trading partners that do not follow the EU’s suicidal climate policy, and entails a great deal of bureaucracy, even for European companies. Trading partners such as India regard this as outright protectionism.

Last summer, the Trump administration managed to secure concessions for American companies, which led to a request from South Africa to be exempted as well, given that African economies are at serious risk of being hit hard by CBAM.

France and Italy want fertilisers to be exempted from CBAM, a request that will become increasingly urgent due to rising energy costs resulting from the war in Iran. The question is whether it would not be better to scrap the EU’s exorbitantly expensive climate policy, and in particular the ETS climate tax, which keeps energy prices in the EU artificially high. The ETS causes significant damage to the competitiveness of European companies, yet the CO2 reduction resulting from the scheme is, all things considered, limited. In that case, there would no longer be any need for CBAM to level the playing field.

The EU does not merely impose customs tariffs on trading partners. Increasingly, regulations, disguised as ‘environmental standards’, are being misused to serve the same purpose. The EU’s deforestation rules require exporters of cocoa, coffee, soya, palm oil, beef and related products to demonstrate that the land used for production has not been deforested since the end of 2020.

This additional bureaucracy has caused tensions with Brazil and the United States. It has also seriously soured relations between the EU and Southeast Asian palm oil exporters such as Malaysia and Indonesia – economic powerhouses that should be a priority for the EU in its quest to diversify its trading partners. It turns out that deforestation in Malaysia, partly thanks to domestic regulations, has improved significantly, with NGOs acknowledging a decrease of 13% by 2024. According to Global Forest Watch, Malaysia lost only 0.56% of its remaining primary forest in 2024. That is less than the 0.87% loss in Sweden. The fact that, here too, the United States was granted a partial exemption for American products contributes to the sense of dissatisfaction.

Furthermore, trading partners – certainly the US – are also dissatisfied with the EU’s new rules on corporate sustainability, set out in the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence (CS3D) requirements. These were recently watered down somewhat, and the reporting obligations and other bureaucratic requirements for companies were also reduced, but many other “non-tariff barriers” remain in place. If the EU wants a world without “Trumpism”, it would do well to put its own house in order first.

An interesting development in this regard is a meeting on the sidelines of the World Trade Organisation (WTO), which is under fire from Trump, between the European Union and the 12-country CPTPP trading bloc. The latter includes the U.K. and Canada and the goal was to launch talks on a deal that would set rules for how digital services trade flows, how electronic contracts are signed and how data is stored and governed. If this arrangement between economies representing nearly a third of the global economy ends up as some kind of mini-UN, a talking shop producing wish lists of ever more regulatory harmonisation, it will be futile, but if it ends up as a forum for further reduction of tariffs and non-tariff bureaucracy, it is more than welcome.

 

 

 

 

  

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