Global trade is shifting for a multitude of reasons: Be it as a response to protectionism, President Trump’s tariffs, or a changing world trade order. As such, the EU must adapt – building resilience, strengthening partnerships, and redefining its strategy.
A blog by Leonie Gruber, Ruben Krebs and Moritz Pohl
While on the other side of the Atlantic, multilateral trade principles and decades of economic integration have been sidelined since Trump’s self-proclaimed ‘liberation day’, the EU appears uncertain about its short-term response to this economic shift.
Moreover, its long-term trade policy seems to be unravelling in an era of geopolitical instability. Even if the majority of the EU’s total trade in goods in 2024 was intra-European (62%), it is no secret that its trade still remains significantly dependent on other, non-European countries led by increasingly authoritarian leaders with expansionist ambitions that could threaten global rule-based trading systems. The US alone, as the EU’s top trading partner, accounted for 17%, followed by China (15%) and Türkiye 4%. Machinery, vehicles, and other manufactured goods are the EU’s main imports from non-European partners.
In the light of past experiences, how should the EU shape its strategy for engaging with anti-democratic and authoritarian leaders such as Donald Trump, Recep Tayyip Erdoğan and Kim Jong-un, while promoting a values-based foreign policy that upholds non-discrimination and the principles of free trade?
Why do we trade?
Since the establishment of the General Agreement on Tariffs and Trade (GATT, now the WTO) in 1947, and especially with the subsequent liberalization of financial markets, trade liberalization has increasingly been seen as synonymous with economic prosperity through competition, international specialization and the division of labor and capital. Particularly in the post-war period, the promotion of free trade and the removal of quotas, tariffs and subsidies were seen as a important tools for stimulating economic recovery.
However, institutionalized free trade has encompassed more than its goal of generating real income. Through the rules and principles of the GATT, such as the most-favoured-nation (MFN) principle – which limits discriminatory practices – or its arrangements for multilateral negotiations, it prevented future conflicts and created political convergence. This was a key idea as a direct response to the second World War.
More recently, the integration of countries such as China and Russia into the WTO was also a politically motivated strategic move, driven by the aim of promoting and strengthening democratic values. Maintaining strong economic ties between nations would support global stability, so international trade gained a significant political dimension, one that is closely intertwined with foreign policy.
Trade without change
From today’s perspective, the belief that political convergence and reform could be achieved through trade – a principle that shaped Germany foreign policy for nearly five decades, exemplified by its close trade relations with Russia under the concept of change through trade (Wandel durch Handel) – now seems increasingly naive.
In practice, countries such as Russia, China and Türkiye have benefited from the economic boom that began in the early 2000s. Russia, for instance, experienced a GDP increase of around 250% between 2005 and 2023, driven mainly by rising energy exports and global demand. Despite this economic growth, the expected political liberalization did not materialize. Authoritarian governance structures remained firmly in place, and the financial gains have helped the country to finance its military spending on favorable terms.
Adapting to the new environment: from Vulnerability to Strategy
At a time of geopolitical instability, marked by the war against Ukraine and the subsequent rupture with Russia, a reassessment of the EU’s trade approach is inevitable. The EU must enhance its resilience to autocratic regimes by boosting domestic demand and production, while reducing its dependence on imports in strategic sectors such as energy and infrastructure. Rising tensions with China and growing uncertainty about the future of transatlantic relations have exposed the fragility of global supply chains and the limits of existing trade rules. At the same time, the EU should remain a strong advocate for open markets, as around 90 per cent of global growth is expected to take place outside the EU in the coming years. To respond properly to this new environment, the EU needs to reorient its strategy around the concept of “open strategic autonomy” – the idea that Europe must reduce key dependencies while balancing economic efficiency and remaining engaged with global trade. This pivot has placed industrial policy and targeted external investment at the center of the EU’s efforts to build resilience and reassert itself in a contested geopolitical landscape, as can be seen by the implementation of the Clean Industrial Deal.
What is the EU trying to achieve?
To this end, the EU has developed its new trade and industrial strategies around two key objectives: diversifying its external trade relations and building greater internal resilience in key sectors. These objectives reflect a broader ambition to ensure autonomy – not a retreat from globalization, but a rebalancing of interdependence on more sustainable and politically reliable terms in line with the EU’s value-based trade policy. The EU is seeking to avoid over-dependence on single suppliers, especially in areas critical to the green and digital transitions, while at the same time strengthening its capacity to act independently in times of crisis. This is being pursued through a dual-track approach: first, by investing in domestic industrial capacity through the Critical Raw Materials Act (CRMA) and the Net Zero Industry Act (NZIA); and second, by fostering new external partnerships through investment initiatives such as Global Gateway, which aims to deepen trade and infrastructure links with emerging economies.
The EU’s Response Toolbox
Internally, as flagship initiatives, the CRMA and the NZIA mark a decisive shift towards more industrial policy at EU level and beyond national borders. These were conceived in direct response to geopolitical shocks – most notably Russia’s weaponization of energy exports and China’s dominance in the supply of rare earths and clean tech inputs, as well as the United States’ Inflation Reduction Act (IRA). The CRMA aims to ensure a secure and sustainable supply of critical raw materials by promoting domestic extraction, boosting recycling, and building strategic partnerships. The NZIA aims to increase clean technology manufacturing in the EU – from solar panels to heat pumps – by streamlining approval processes and creating financial incentives. The “Omnibus” packages by the EU serve as further measures aiming at simplifying permission processes and the implementation of the Carbon Border Adjustment Mechanism (CBAM).
Complementing the internal efforts is the Global Gateway initiative, which adds an external dimension to the EU’s strategy: Launched in 2021, the initiative aims to mobilize up to €300 billion by 2027 to fund sustainable infrastructure and digital connectivity projects in the Global South. It functions not only as a value-based counterweight to China’s Belt and Road Initiative, but also as a pragmatic attempt to diversify trade and access to resources by fostering new economic partnerships in Africa, Latin America, and Southeast Asia. These instruments aim to create a more assertive EU – one that is reshaping its economic model to remain competitive in a less stable and more contested economic world order.
Tensions, Challenges, and Open Questions
However, pursuing these pillars of creating a more assertive EU also entails risks, trade-offs, and unresolved tensions. A key trade-off is between increased autonomy and violating the EU’s commitment to open markets and maintaining the reliability of the global trade order, given the NZIA and CRMA’s reliance on subsidies and local content requirements. Critics also warn of fragmentation within the single market, as larger member states may be in a better position to attract investment and co-finance national industrial initiatives. Meanwhile, the Global Gateway initiative faces skepticism about its implementation capacity and clarity, as some target regions face challenges in implementing the initiative’s projects. A further challenge lies in the complex geopolitical terrain: while the EU seeks to diversify and engage in value-based trade through like-minded partnerships, countries in the Global South may risk being drawn into strategic rivalries between ideological fronts. All this raises a fundamental question: can the EU truly reconcile its geopolitical ambitions with its strategy and values – or will this adaptation come at the expense of openness, unity and credibility and thus further perpetuate current geopolitical tensions?
Make (Trade) Agreements Great Again
In addition to the EU’s aforementioned adjustment strategies, free trade agreements are once again gaining prominence in light of the tariffs recently reimposed by Donald Trump. While Trump claims that many countries are now “begging” for trade deals with the United States, it remains to be seen how the global community will respond. Countries that are highly dependent on the US might indeed seek such deals, yet Trump’s erratic trade policies have alienated long-standing partners, particularly in the Global South, who are now among those most affected by the new tariffs. Moreover, his actions suggest a fundamental underestimation – or perhaps lack of understanding – of the broader economic, financial, and trade-related implications of such measures.
This volatile situation offers opportunities for the European Union, but they require a recalibrated approach. The EU should resist US pressure, while at the same time seeking constructive dialogue. Despite current challenges, the transatlantic alliance is still worth defending. On the other hand, the EU must assert its own interests and take into account the diverse needs of its member states. After all, the failure of the TTIP negotiations in 2017 reflected precisely this complexity. Any new trade agreement must be approached with a sharper focus on safeguarding European interests. More importantly, the EU should focus on forging new partnerships. On April 22, Ursula von der Leyen noted that many countries are now seeking deeper cooperation with the EU.
From Ambition to Action
But how realistic is the swift implementation of such agreements? The EU should avoid repeating the mistake of overly ambitious, all-encompassing agreements that take decades to materialize, like the EU-Mercosur agreement. Instead, smaller, quickly negotiable agreements with the potential for gradual expansion seem far more promising – especially in the sectors most affected by the upcoming US tariffs in July. This pragmatic approach should also be reflected in ongoing negotiations, such as those with India and others. Furthermore, André Sapir of the Bruegel Institute proposes that the EU form an international open trade coalition, advocating for a formal alliance of like-minded countries committed to rules-based trade as a response to today’s volatile trade environment.
The Global South deserves special attention in this context. By withdrawing, the US is giving up what is left of its influence in the Global South, leaving room for actors such as China and Russia to fill the void. The EU must take the initiative to counter this trend and tap into its own potential. Strong, mutually beneficial trade relations are crucial for the EU, which lacks sufficient domestic raw materials, particularly critical raw materials. However, such agreements must be fair, equitable, and based on an equal footing, avoiding neo-colonial dynamics.
Coalitions, Courts, and Countermeasures
The renewed spotlight on US-China relations is likely to dominate Trump’s second term. His latest tariffs have sparked the beginning of a trade war, with China vowing to retaliate . Whether his temporary 90-day suspension of the new tariffs will be extended or revoked remains uncertain. The US President’s actions continue to raise concerns not only because of their unpredictability but also because of potential conflicts of interest and favoritism toward close allies. The past few weeks have set the tone for what could be another tumultuous four years – or more.
It is crucial for the EU to approach the end of the suspension period with a clear strategy. To this end, the bloc should be fully aware of its options and prepared to deploy instruments like the Anti-Coercion Instrument swiftly if needed. So far, the EU`s countermeasures have only been frozen, but this should mark the beginning of a more assertive trade defense strategy. Special attention should also be paid to long-overdue digital tax initiatives, which could become part of broader retaliatory measures.
Equally important is the need for unity. Internal fragmentation would weaken the EU’s position. France and Germany, as economic heavyweights, must lead the way, while member states such as Hungary, whose leadership is increasingly challenging EU values, must be closely monitored. The upcoming French presidential elections in 2027 could mark a turning point for France if the office of president, which comes with a significant amount of power, were to be taken by the candidate from the right-wing Rassemblement National. On the other hand, Germany, having weakened its voice in recent years through abstentions in the European Council, must now reassert its role. The likely next chancellor, Friedrich Merz, will have the opportunity to set a clearer course and become a stabilizing force for Europe.
Finally, a WTO case initiated by China is currently underway and may be joined by other countries. Although this is a long process, it raises questions about the relevance of multilateral mechanisms in an increasingly unilateral world, and whether the US, as a founding member and former sponsor, will abide by any rulings.
Way forward: Building Resilient Interdependence
The global trade order is at a turning point. It is increasingly shaped by geopolitical instability, the retreat of the United States from multilateralism, and the rise of systemic competition. In this context, the EU’s adaptation strategy reflects an urgent need to adapt to a more fragmented and contested global trading order – not by retreating from globalization, but by reshaping it on more resilient and value-based terms. Instruments such as the CRMA, NZIA, and Global Gateway aim to help the EU to reduce critical dependencies, strengthen internal capacities, and diversify external partnerships. However this shift is fraught with tensions – between autonomy and openness, unity and fragmentation, ambition and delivery. Whether the EU can turn this balancing act into a lasting geopolitical strength remains the true test of its new adaptation strategies.
Leonie Gruber is a project officer in the division European Dialogue – Political Thinking on Europe at the Genshagen Foundation. She has a Master’s degree in International Relations and gained professional experience at the Franco-German Chamber of Foreign Trade and at the OECD in Paris. She is a member of the European Economic Policy Program of Polis180.
Ruben Krebs is a Master’s student in the Double Degree program “International Development Economics” at the Universities of Groningen and Göttingen. He obtained his bachelor’s degree in Applied Economics at Osnabrück University of Applied Sciences and is a member and author of the European Economic Policy Program of Polis180.
Moritz Pohl is an economic history Master’s student from the university of Göttingen. He obtained a bachelor’s degree in Management and Economics at the Ruhr-University Bochum and is one of the Co-Leads of the European Economic Policy Program of Polis180.
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