In recent years, EU trade policy has changed dramatically. Having originally focused on promoting rules-based trade, open markets and ensuring a favourable economic environment for EU companies and consumers, this changed when the EU trade policy became a tool for promoting other objectives, such as national security, climate change and promotion of human rights and high social standards. Nowadays, EU trade policy is itself shaped by geopolitical instability, concerns over supply chain resilience, the European Green Deal (EGD) and regulatory framework promoting human rights and high social standards. It is developing in conflict between multilateralism, bilateralism and unilateralism.

The EU has also faced criticism for promoting sustainable trade through free trade agreements (FTAs).

Geopolitical instability has weakened the multilateral rules-based trading system, with its members, including the EU, turning to protectionist measures that violate WTO rules and undermine the common action on climate change.

With the return of Donald Trump as the president of the US, the EU should expect new tariffs and trade barriers on EU goods, more protectionism and a weakening of multilateralism and support for climate action. US import tariffs could harm EU export-led sectors such as automotive and machinery, and affect economies such as Germany, Italy and Ireland. This scenario is reminiscent of that of 2018, when the Trump administration imposed tariffs on EU steel and aluminium.

The EU has also responded to geopolitical changes with the adoption of protectionist and national security measures, including import and export restrictions and subsidies. It has been changing its global supply chains with the aim of reducing dependance on major suppliers and diversifying its sources of supply, often switching to regional suppliers to shorten supply chains. In 2023, the majority of EU countries traded more within the EU internal market (about 60% of EU trade in goods) than with countries outside the EU (40% or less). 

The decoupling of global supply chains into the Eastern bloc led by China and the Western bloc, led by the US, will certainly come at a cost for the EU. While the US has reallocated its supply chain activity, mainly to Vietnam and also to Mexico, China remains the main origin for EU imports (mainly in the chemicals, energy, other manufactured goods, and machinery and vehicles sectors), and the US is the main destination for EU exports (mainly in the machinery and vehicles, chemicals and other manufactured goods sectors).

Climate Change, Human Rights and Social Standards

The EU has been committed to pursuing high social, human rights and environmental standards, all of which come at a cost for EU businesses and consumers.

EGD aims at reaching zero emissions by 2050. The focal provision of the EGD is to increase the effective carbon price paid by EU producers of manufactured products covered by the emissions trading system (ETS). The phasing out of free ETS allowances will go hand-in-hand with the gradual phasing in of Carbon Border Adjustment Mechanism (CBAM), a mechanism meant to equalise the price of carbon between goods produced in the EU and imports.

The EU Deforestation-Free Regulation (EUDR), which entered into force in 2023, prevents the importation of goods related to deforestation to curb the loss of forest in the EU, prevent land degradation and maintain biodiversity. Application of EUDR has been postponed to December 2025. It is expected to have a significant impact on supply chains.

In the textiles sector, a new regulatory framework restricts export of textile waste and fosters circularity and sustainability. The aim is to end fast fashion and to focus on the elimination of hazardous substances in the production process, and to encourage environmentally responsible textiles made of recycled fibres and set to be durable, reparable and recyclable. This adds a burden on domestic producers within the EU and puts them at a competitive disadvantage vis-à-vis their global rivals.

In 2024, the EU reached provisional agreement on a regulation prohibiting products made with forced labour. It targets and threatens to impose import bans on products made with forced labour from anywhere in the world. A product will be banned if forced labour has been used “in whole or in part at any stage of its extraction, harvest, production or manufacture, including working or processing related to [the] product at any stage of its supply chain”. This includes both downstream and upstream tiers of a product’s supply chain. The Regulation is expected to be fully applicable around 2027–2028.

The Corporate Sustainability Due Diligence Mechanism addresses human rights and environmental risks, in addition to labour standards. It applies to EU and non-EU companies that meet certain thresholds and a number of employees requirement. Failure to comply with the Directive can give rise to penalties and civil liabilities, but will not ban the circulation of the product in the EU. The Directive will apply to EU and non-EU businesses in a staggered manner (from 2026 to 2029), depending on the company turnover.

The cost of the fight with climate change, forced labour and human rights violations will be high. Furthermore, the change to supply chains caused by geopolitical instability affects sectors that are important for achieving the EGD’s aims, making them harder to achieve.

Energy Supply

The EU has been transitioning towards green energy sources, energy efficiency and secure supply. It has been reducing its dependence on Russian energy and trying to diversify sources of supply. EU imports of Russian fossil fuels fell from USD16 billion per month in early 2022 to around USD1 billion per month by the end of 2023. The EU is currently reducing the consumption of Russian liquid natural gas (LNG), by increasing imports from Norway, US, Qatar and Algeria. Russia remains the second-largest natural gas supplier to the EU. EU energy supply is further complicated by the expiry at the end of 2024 of the contract for transit of Russian natural gas through Ukraine. Diversification of sources of supply is a lengthy and costly process, requiring investment in infrastructure – eg, building new pipelines and LNG terminals. So far, sanctions against LNG imports from Russia have been vetoed.

Europe remains divided on the increase of nuclear energy supply. In 2023, certain EU member states launched an initiative called European Nuclear Alliance calling for an increase in the approval of small nuclear reactors and a stronger nuclear policy. A number of new projects have been launched including the Innovation Action called SAVE under the Euratom project with a USD10 million grant. The project will contribute to a swift and secure development and deployment of a European fuel solution for the water-water energetic reactors (VVER). So far, the EU has not imposed sanctions against Russian Rosatom, accounting for 16.9% of Europe’s natural uranium, 22.35% of the EU’s conversion services, and 30% of its enrichment services.

Critical Minerals

In March 2024, the Council adopted the EU’s European Critical Raw Materials Act, as demand for rare earths is expected to increase exponentially. Critical raw materials (CRMs) are raw materials of high economic importance for the EU, with a high risk of supply disruption due to their limited supply and lack of quality, affordable substitutes. The Act aims to diversify supply, strengthen circularity, and support research and innovation for the development of substitutes. 

The CRMs Act follows the EU Chips Act issued at the end of 2023, which focused on semiconductors, and its applications. Both acts evidence vulnerability of the supply of strategic materials and products, dependence from third countries, surges in demand, and shortages.

In 2023, the EU also adopted the CRMs Package and in 2024, together with the US and other partners, launched the Minerals Security Partnership Forum (“MSP Forum”) focused on diversified and sustainable supply chains. The EU is heavily dependent on imports of CRMs and the demand will continue to increase, stimulated by the demand in strategic sectors, such as the zero-emission industry, digital, space and defence.

Sanctions

The EU continued to expand sanctions against Russia and third countries, focusing on enhanced anti-circumvention measures and enforcement.

In 2025, key priorities of the EU are not expected to change. While the US may shift its focus to China and the Middle East, both the US and EU will continue pursuing human rights violations and cybersecurity through the imposition of sanctions. In 2020, the EU had already put in place a global human rights sanctions programme targeting human rights violations. However, unlike the US, UK and Canada, the EU does not have an anti-corruption programme. In 2022, there was a proposal to include corruption in the human rights sanctions, which has not materialised.

On 8 October 2024, the EU adopted a new sanctions programme against Russia focusing on cybersecurity. The Regulation addresses a broad range of activities against the EU and its member states, including cyber-attacks, information manipulation and interference campaigns, cases of arson, vandalism and sabotage, including against critical infrastructure as well as instrumentalisation of migration and other disruptive actions. 

The Regulation allows the designation of natural or legal persons associated with, or which “support” natural or legal persons engaged in the aforementioned activities (derivative listing criteria at Article 2, paragraph 3, point (c) of the Regulation), but does not define “support”. Support is required to be “material” or “financial” under the Council Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine. No designations have been made under the Regulation as at the date of writing this article.

The basis for derivative designations offers the EU flexibility and acts as a deterrent from engaging in dealings with entities and individuals who may be designated. Furthermore, the EU may use this basis for designation not only for targeting any individuals and entities worldwide providing support to Russian persons. The derivative basis for designation further approximates EU sanctions to the US sanctions practice, which has usually contemplated derivative designations for provision of material assistance, sponsorship, or financial, material or technological support (see – eg, Section 1(a)(vi) of EO 14024). 

Enforcement will remain another focus. At a moment when EU member states have been increasing the level of scrutiny over sanctions infringements, the EU adopted Directive 2024/1226 on the definition of criminal offences and penalties for the violation of Union restrictive measures, which entered into force on 19 April 2024. The Directive requires member states to establish minimal penalties for the violation of EU sanctions and similar rules concerning the definition of criminal offences. EU member states are expected to transpose the Directive into national law by 20 April 2025.

The EU has also adopted a Whistle-Blower initiative and Freeze and Seize Task Force to ensure efficient implementation of EU sanctions.

Regulatory burden due to the imposition of sanctions and export controls is expected to grow, adding cost for companies.

Export Control Reforms and Outbound Investment

As part of the EU’s economic security strategy, on 24 January 2024, the European Commission announced five initiatives to strengthen the EU’s economic security. 

The EU is aspiring to achieve greater harmonisation of national rules, allowing EU member states to identify minimum sectoral scope to screen foreign investments. EU screening will be extended to investments by EU investors that are ultimately controlled by individuals or businesses from a non-EU country.

Over growing concerns regarding outbound investments in certain advanced technologies that could enhance military and intelligence capacities of actors that undermine peace and security, the EU proposed to establish monitoring and controls which are currently missing at a national level. In July 2024, DG Trade published the results of a targeted consultation, which acknowledged the risk of such transactions. The Commission is considering the next steps to address security risks concerning outbound investments.

The Commission proposed the revision of the EU Dual-Use Regulation in 2025, and enhanced co-ordination of implementation between national competent authorities. Revision consists of introducing EU controls on items that are not controlled by the multilateral export control programmes and will draw from the experience of implementation of additional controls imposed against Russia. It is expected that this will help avoid patchwork of national controls.

The EU is also assessing funding of R&D in technologies with dual-use potential, in light of geopolitical challenges. The White Paper on export controls with the consultation period that ended on 30 April 2024, examined three options: (i) continuing to fund civil applications only, (ii) removing the exclusive focus on civil applications for certain R&D with dual-use potential, and (iii) creating a dedicated instrument with a specific focus on R&D with dual-use potential.

The fact that results of international research and innovation co-operation could be used for military purposes in certain third countries or in violation of fundamental values is another area of concern. In May 2024, the Council of the EU adopted a recommendation to enhance research security. The recommendation identifies risks relating mainly to undesirable transfer of knowledge, foreign interference, and ethical or integrity violations. The recommendation does not contain binding provisions, but offers guidance. 

Trade Remedies

Over the past years, the EU has been increasing the use of trade defence measures. In 2023, the EU initiated more than twice as many new cases as in 2022. In particular, in 2023, 20 such cases were initiated, up from seven in 2022. The EU continued this trend in 2024 initiating investigations against China (glass fibre yarns, mobile access equipment, tinplate, multilayered wood flooring (MWF), seamless pipes and tubes, lysine, vanillin, decor paper, epoxy resins), optical fibre cables (India), aluminium road wheels (Morocco), and Japan, Egypt, India, Vietnam (hot rolled-flat steel).

The EU has been increasingly using the dumping calculation methodology accounting for distortions caused by state inference, which allows the application of surrogate values from other representative markets in the “normal value” calculation. If, in the past, the adjustment was used to account for differences in raw material prices, recently the EU started adjusting the calculation of dumping margins to account for differences in the levels of social and environmental protection. These adjustments were used twice in 2023.

A widely debated anti-subsidy investigation initiated in 2023 concerning imports of battery electric vehicles (BEVs) from China launched by the Commission on its own initiative led to the imposition of duties on BEVs from China of up to 35% for a period of  five years, while price undertaking negotiations continue. As early as November 2024, China has requested WTO consultations with the European Union regarding the countervailing duties imposed by the EU on BEVs, claiming that the EU infringed the WTO’s Agreement on Subsidies and Countervailing Measures (SCM) and Article VI of the General Agreement on Tariffs and Trade (GATT) 1994.

The increase in new investigations initiated by the EU in 2023 was mirrored by an increase in third-country cases opened against the EU or its member states. At the end of 2023, there were 176 trade defence measures in force affecting EU exports, six more than in 2022. The US remains the most frequent user of TDIs against EU exports, with 38 measures in force. It is followed by China and Turkey with 18 measures each, while Brazil and Indonesia have 11 measures each. During the second Trump term, the number of trade remedy investigations into imports of commodities from third countries, including the EU, will likely increase.

WTO, Bilateral and Regional Agreements

Over the past years, international trade has moved from multilateralism to weaponisation through protectionism and national security objectives. During its first term, the Trump administration reduced the WTO Appellate Body to non-functionality, unilaterally imposed tariffs and started trade war against China. President Biden did not rescind the unilateral tariffs, and the China-US crisis has continued unabated. Pending a resolution of the Appellate Body situation, the EU and other WTO members established the Multi-Party Interim Appeal Arbitration Arrangement (MPIA), which functions as a two-step dispute settlement system in the WTO, including the availability of an independent and impartial appeal stage.

During the 13th ministerial meeting in 2024, the EU and other members attempted negotiations of a comprehensive agreement on global fisheries subsidies, agriculture reform, and meaningful progress on dispute settlement. Members committed to take steps to restore a fully functioning dispute system by the end of 2024. However, no progress was made to the date of November 2024. In February 2024, the joint statement initiative on a domestic regulation for services became binding for 45 members, including the EU. Negotiations on the Investment Facilitation for Development (IFD) were also successfully concluded in February 2024.

The EU has a wide network of bilateral and regional FTAs which it has continued to expand. New FTAs are in force with Vietnam, Japan, Singapore, and the UK. In February 2024, the European Parliament gave its consent on the EU-Chile Advanced Framework Agreement. Other FTAs being negotiated include: EU-India Free Trade Agreement, EU-Indonesia Free Trade Agreement, EU-Kenya Economic Partnership Agreement, EU-Philippines Free Trade Agreement and Australia-EU Free Trade Agreement.

The long-awaited bilateral investment treaty with Taiwan has not materialised. In 2023, Taiwan was the 13th-biggest trading partner of the EU. The EU Parliament has called for an increase in EU-Taiwan trade and investment relations. 

There are currently no trade or investment treaties between China and the EU as a bloc. In late 2020, the EU and China reached an agreement in principle on an investment deal called the Comprehensive Agreement on Investment (CAI). However, following China’s sanctions on several EU MEPs, the approval process for the agreement was halted, and negotiations have not resumed since. The future of an EU-China agreement is fraught, because of the support that China has provided to Russia. That said, currently, China has active bilateral investment treaties (BITs) with all EU countries except Ireland. These BITs guarantee protection to investors and their investments from both contracting countries in the other contracting country, as guaranteed by the most-favoured-nation (MFN) clause. 

Despite the US being the EU’s largest trade and investment partner, there is no dedicated free trade agreement between the EU and the US. The Transatlantic Trade and Investment Partnership (TTIP) launched in 2013 ended in 2016 and formally closed in 2019. Following the recent election of Donald Trump as president of the United States, the relaunch of negotiations is unlikely.

The EU and UK recently supplemented their UK-EU Trade and Co-operation Agreement (TCA) through a new co-operation competition agreement. This agreement is aimed at improving co-operation between the UK’s and EU’s competition authorities, allowing for greater dialogue between the Competition and Markets Authority in the UK, the European Commission and the National Competition Authorities of the EU member states.

The EU has been promoting sustainable FTAs to involve more countries in climate action, by introducing binding Trade and Sustainable Development (TSD) chapters in the FTAs which faced criticism from partners. Developing countries have expressed concerns that through the implementation of EGD agenda, the EU is imposing trade barriers.

New Mandate of EU Parliament and Maroš Šefčovič

The recent appointment of Maroš Šefčovič as the Commissioner for Trade and Economic Security and the new EU Parliament will be shaping EU trade policy.

The priorities of Maroš Šefčovič’s mandate include the use of trade defence instruments and reducing strategic dependency on certain suppliers; developing economic security standards for key supply chains within the G7 to protect EU from technology leakage and sanctions concerns; EU customs reform including the establishment of the new EU Custom Authority and digital transition of EU Custom system; reform of the Harmonized System; work on the reform of the WTO, bilateral and regional trade agreements under negotiation and new ones; pursue climate, environmental and labour standards objectives; deepen relationship with the UK, Switzerland and Western partners; enhance bilateral trade and investment ties with US; manage trade and economic relations with China, based on reciprocity and  pursuing de-risking but not de-coupling, and strengthen trade with the Indo-Pacific, Caribbean and African regions.

Addressing business relations with the US and China is critical for the EU. With regard to China, the EU’s objectives are transparency, predictability and reciprocity in relations. With the US, questions of fundamental interest are the future co-operation on sanctions against Russia, the imposition of tariffs on imported goods, the separation from global environmental goals, new trade war against China, and military positioning in Taiwan and Israel-Palestine conflict (including strengthening of Iran sanctions).

This shows that the EU will continue using trade policy as a tool to ensure economic and national security. At the same time, while the new Commissioner will be prioritising EGD and sustainability, some members of the new EU Parliament may be less sensitive to the climate change and sustainability agenda, which faces criticism both within the EU and from its partners.