In this time of war and conflict, some historical trade agreements are coming to an end or being put on hold. The narrative around international trade and its relationship to geopolitics has drastically changed. The European Union is now trying to promote its interests while counting on reliable partners and avoiding creating animosity.
ByLola BRETON
After less than two years of war between Ukraine and Russia, the value of EU imports from Russia has fallen by 84%. Because of the sanctions imposed on the aggressor, the trade agreements that existed between the Union and the country ruled by Vladimir Putin have become null and void. This new reality is only one of the reasons why the EU is currently rethinking its geopolitical strategy around international trade. “We are already noticing an overall fragmentation of international trade according to geopolitical lines”, Elvire Fabry, senior researcher on the geopolitics of trade at Institut Delors, says.
This development is linked to a global shift in views regarding trade. On the international level, “the cards are reshuffled by political and economic interests”, Elvire Fabry points out. “We can observe it through the example of the Chinese position towards Russia. China doesn’t approve of the conflict in Ukraine but its political interests keep it from challenging Putin.” This position puts Xi Jinping’s State in opposition with the European Union and the rest of the so-called western world. The latter’s most influential player, the United States, is still promoting trade liberalisation and its products and services. Still, the US and China account for one-third of EU foreign trade according to an October research article by IFRI. Regarding China, the American National Security Advisor, Jake Sullivan, emphasised in an address made earlier this year: “As President von der Leyen put it recently, we are for de-risking and diversifying, not decoupling. We’ll keep investing in our own capacities and in secure, resilient supply chains. We’ll keep pushing for a level playing field for our workers and companies and defending against abuses.”
A narrative shift
In May 2023, Carlos Góes and Eddy Bekkers wrote a research article published by the MFI titled “The impact of geopolitical conflicts on trade, growth and innovation”. They found that “the projected welfare losses for the global economy of a decoupling scenario [between the East and West] can be drastic, being as large as 12% in some regions”. A dismantling of the current multilateral trading system would lead to losses, especially for small players.
While the EU is unwilling to walk in the US’s footsteps if it pursues decoupling, the EU is trying to establish a new narrative for international trade while working past the disagreements among its members. “For a long time, the EU based its trade policies on the Washington consensus”, MEP and Chair of the Committee on International Trade Bernd Lange notes. “Now, we are faced with a fragmented globalisation because some countries are focusing on their own influence. Not everybody is playing fair.” The Washington consensus, which originated in the 1980s under Ronald Reagan’s presidency, was a set of economic liberalisation principles aimed at reviving economies, especially those of US trade partners in South America.
Nowadays, the narrative is changing in the European Union, which is looking for “security and sustainability”, MEP Bernd Lange says. “Our priority is to build a safe and stable supply chain.” To achieve this goal, the EU has a “defensive of offensive tools”, the member of Parliament explains, quoting, for example, anti-dumping measures on the one hand and “the big net of reliable partners” – such as Chile, New Zealand, Australia, or Indonesia – on the other.
A new set of recommendations for economic security
“The US would like a club of democracies to trade together, but the EU is not a fan of the idea because it would exclude a huge part of the world”, Elvire Fabry explains. The issue is to identify reliable partners without creating exclusion. This is a significant challenge because Russia and China have long tried to attract emerging countries in their spheres of influence, especially those that hold critical raw materials. If the EU remains committed to the rule of law and the protection of human rights, it must build “a common culture of risk assessment”, the researcher notes.
In June 2023, the European Commission and the High Representative published a communication detailing an economic security strategy, focusing on “minimizing risks arising from certain economic flows in the context of increased geopolitical tensions and accelerated technological shifts, while preserving maximum levels of economic openness and dynamism”. “The idea is to preserve an open economy while protecting our European interests”, Elvire Fabry says. In June, the Commission detailed a methodology to assess risks around technology, civil and military fusion, and human rights violations. In early October, it identified four critical technology areas in which risk assessments must be carried out: advanced semiconductors, artificial intelligence, quantum technologies, and biotechnologies. In the recommendation, six other areas (navigation and detection technologies, and those related to space, energy, robotics, and materials) are highlighted as requiring in-depth examination regarding technological risks and technology leakage.
Looking closely at the East
Again, China’s shadow underlies the recommendation and this new narrative, without ever being named. “China is a global partner”, MEP Bernd Lange says. “We can’t ignore 1.4 billion people. In some areas, we need them, especially regarding climate change. We have links. Yet, we are in competition, so we have to look closely at them.” The chair of the Commission for International Trade remembers the e-bike dispute between Beijing and Brussels. The EU suspected China of implementing dumping measures on e-bike parts imported into Europe. It implemented tariffs that are set to expire in January 2024. The tariffs will then be revised, and the EU will decide if the risk still exists. “We have to guarantee a level playing field for this competition”, Bernd Lange says, keeping human rights in mind.