Introduction

In today’s geopolitical environment, trade policy functions less as a market-access mechanism than as a lever of economic statecraft. In a world where standards, data flows, investment, intellectual property, and critical minerals are treated as instruments of power and sources of dependency, trade has become a channel through which resilience is built – or vulnerabilities exposed. As European Union (EU) Commissioner Maroš Šefčovič wryly observed, “everything can be weaponised.”

This chapter examines the EU’s trade policy in 2025 through this prism. It looks at how the EU navigated a volatile geopolitical environment; what concrete policy actions it undertook; and what to expect in 2026 as the EU’s economic-security machinery is tested in practice.

The EU in a Challenging Geopolitical Environment

If we ask “what shaped EU trade policy” from the outside, four ongoing geopolitical challenges stand out.

War in Ukraine, still

First, the war in Ukraine and the EU’s sanction regime vis-à-vis Russia continued to shape its external environment. As part of a broader, co-ordinated Western effort, the EU introduced its 19th sanctions package in October 2025, featuring a phased import ban on liquefied natural gas (LNG) imports from Russia. The phased LNG ban rattled European energy markets, adding to the pressures of an already underperforming EU economy.

The EU in between the USA and China

Second, the EU increasingly found itself a collateral target of the USA–China trade war. The EU absorbed real economic consequences from the continued bilateral escalation: heightened uncertainty; significant trade diversion of Chinese goods into the EU; erosion of EU export positions in key markets; and disruption to supply chains that particularly hurt European mid-chain producers. In addition, investors postponed, cancelled, or scaled back European investment plans, preferring to redirect foreign direct investments (FDI) towards either jurisdictions shielded behind tariff walls or “neutral” production locations.

A telling example of how the EU was caught in the USA–China crossfire was Beijing’s imposition of export-control measures: On 4 April 2025, China restricted exports of seven rare-earth elements and selected high-performance magnets, a move widely read as retaliation for new US tariffs and export-control steps. On 9 October, China further widened the scope to include goods affecting EV drivetrains, wind-turbine generators, and defence sensors. While China suspended its 9 October measures in early November, the damage was done. Permit risk and lead-time uncertainty had already rippled through European automotive, renewables, and defence supply chains.

While the EU could neither control USA–China escalation nor fully insulate itself from collateral shocks, it attempted to blunt the spillovers through measured deployment of its trade defences and enforcement arsenal where necessary. This was a posture of economic triage, not aggression, aimed at stabilising exposure while avoiding open confrontation.

Trading jabs with China

Third, China’s retaliation against EU de-risking served as a sharp reminder of both the costs of regulatory tightening and the limits of EU trade policy autonomy. Beijing’s responses were calibrated rather than explosive: targeted countermeasures rather than shock therapy. China chose its pressure points deliberately, applying mirror investigations, regulatory frictions, and supply-chain leverage that were big enough to affect sensitive EU sectors without provoking a full-blown retaliatory spiral. Examples included:

• In October 2025, the Dutch government took temporary control of Nexperia under emergency national security powers. China, citing a national security review, temporarily halted export clearances for specific auto-grade microcontrollers and power semiconductors produced in China by Nexperia-affiliated fabs. The four-week hold caused severe disruptions in just-in-time deliveries for several EU automotive suppliers. While Beijing lifted the administrative hold on 8 November – during a USA–China summit – the episode served as a reminder to the EU that China has significant leverage over EU value chains. Dutch authorities suspended their restrictions on the Nexperia deal, effectively handing back control to the Chinese owners.
• The EU’s definitive countervailing duties on Chinese battery electric vehicles (BEVs), in force since late 2024, remained an important point of irritation for China. In 2025, China pursued anti-dumping (AD) cases on EU brandy and pork and a countervailing duty (CVD) investigation into EU dairy. China explicitly framed these actions as responses to the EU’s anti-subsidy actions. This has culminated in preliminary AD margins as high as 60% (September 2025) and price-undertaking commitments from several EU brandy exporters. In parallel, China requested World Trade Organization (WTO) consultations over the EU BEV duties, with a panel composed on 13 October (DS630).
• In its first application of the International Procurement Instrument (IPI) in June 2025, the Commission directed authorities to exclude Chinese bidders from medical-device tenders exceeding EUR5 million and limit China-origin content on inputs or subcontracting to below 50%. Beijing condemned the step and, effective 6 July, barred most EU firms from Chinese central-government procurement of medical equipment above CNY45 million (approximately EUR5.3 million), while allowing participation by locally incorporated subsidiaries.

Despite the choreographed tit-for-tat, communication channels between the EU and China remained open. In November 2025, a bilateral technical working group on customs and export-licensing facilitation was revived and Chinese trade authorities began expediting licensing pathways for rare-earth and magnet shipments tied to time-critical EU industrial orders. This calibrated easing – while limited – signalled a shared interest in de-escalation and in avoiding broader supply-chain disruption which would hurt both sides.

The EU and the US: the art of the stopgap

Fourth, the EU had to deal with the neo-isolationism and transactionalism of the incoming Trump administration. The EU avoided full escalation but at a high price. The relationship now appears stable yet asymmetrical. The culmination point came with the US–EU Framework Agreement on Reciprocal, Fair, and Balanced Trade, concluded on 21 August – an asymmetrical arrangement that extracted sizeable concessions from the EU.

• The EU agreed to accept a floor/ceiling US tariff of 15% on most EU exports. Steel and aluminium were notably excluded, leaving the United States’ Section 232 tariffs against EU exporters in place. The EU also agreed to eliminate tariffs on all US industrial goods and grant preferential market access to a range of US agricultural and processed goods.
• Washington conditioned any discussion of an end to metals tariffs on digital concessions by the EU. Brussels officially resisted linking dossiers, but many commentators read the November 2025 digital omnibus – offering “simplifications” and timetable relief from the General Data Protection Regulation through the AI Act – as a sign of accommodating the USA.
• The Framework contains several volume commitments by the EU, including assurances to purchase USD750 billion worth of US energy by 2028 and USD40 billion in AI chips, and to invest an additional USD600 billion across US strategic sectors. The energy commitment is particularly controversial in Brussels; critics argue it replaces dependence on Russian energy with dependence on US energy.

Despite the asymmetry of the deal, the EU succeeded in preventing a full-blown tariff war with Washington and, crucially, avoided any activation of its “trade bazooka”, the Anti-Coercion Instrument, against the USA (or any trading partner, for that matter). The US–EU Framework ended the period of unpredictable, ad hoc tariff threats and rolling waivers, bringing a degree of legal and commercial predictability and stability to transatlantic trade relations. In the Framework, the EU also secured carve-outs from the 15% flat tariff facing its exports, ensuring that certain goods – aircraft and aircraft components, generic pharmaceuticals and their chemical precursors, as well as natural resources unavailable in the United States – retain standard most-favoured-nation (MFN) market access in the United States. Further, the agreement preserves and even reaffirms co-operation in areas where EU and US interests align, such as the Critical Minerals Agreement and ongoing co-ordination on export-control regimes. All in all, while the concessions were heavy, the EU retained a strategic toehold and ensured that the relationship with Washington stabilised.

To sum up the EU’s year in geopolitics, 2025 left Brussels with ruffled feathers rather than broken bones. Despite significant geopolitical pressures, the EU preserved agency and acted as a stabilising presence in a turbulent trade environment.

Notable EU 2025 Trade Developments

The EU took active steps towards shaping its economic-security position. Its operational blueprint – the 2023 Economic Security Strategy – is organised around three core pillars: “Promote”, “Protect”, and “Partner”. Unlike the frenetic legislative drive of 2023–2024, 2025 was characterised by selective implementation, enforcement, calibration, and operationalisation of existing tools.

“Promote”: the EU’s support for supply chains and investment

• The Critical Raw Materials Act (in force since May 2024) shifted to delivery in 2025. The Commission expanded the project pipeline, launched a matching platform connecting EU stakeholders, and initiated work on a second project call.
• The Net-Zero Industry Act (NZIA), adopted in 2024 to build EU clean-tech capacity, also entered its implementation phase in 2025. The Commission issued the first package of secondary legislation aiming to expand the scope of qualifying strategic technologies and begin operationalising project-specific support mechanisms. In parallel, work advanced on procurement and permitting rules to accelerate investment and direct demand towards EU-based production.
• On state aid, the Clean Industrial Deal State Aid Framework (CISAF), introduced in June 2025, codifies aid intensities, enables matching of aid against third-country subsidy offers, and streamlines notification procedures. Compared with previous ad hoc regimes, CISAF provides a more durable architecture for matching foreign subsidies, gives member states clearer conditions under which they can respond to third-country incentives, and achieves more predictable, rules-based assessments. Multiple financing waves under the Important Projects of Common European Interest (IPCEI) moved from set-up to operational stage, including on projects in cloud infrastructure and services.
• EU institutions advanced an “omnibus” package aimed at streamlining scope and delaying application of parts of the Corporate Sustainability Due Diligence Directive (CS3D) and Corporate Sustainability Reporting Directive (CSRD). The Commission explicitly hopes to reduce reporting and due diligence costs for EU and foreign groups. Trilogues are underway following the Parliament’s November 2025 vote.

“Protect”: playing defence

• The Foreign Subsidies Regulation (FSR) continued to mature in 2025, with in-depth investigations across both government procurement and concentration modules. While fewer notifications were withdrawn in 2025 than in 2024, practitioners read this not as weakened deterrence but as evidence that voluntary compliance, early engagement with the Commission, and pre-notification structuring are working as intended.
• Trade-defence activity remained high in 2025. Highlights included definitive anti-dumping determinations on biodiesel from China, definitive countervailing duties on biodiesel from Argentina, and a safeguard action on certain ferroalloys. In an effort to counter global overcapacity and trade deflection resulting from US tariffs, the Commission in early October 2025 proposed a new tariff-rate quota (TRQ) regime to succeed the current steel safeguard due to expire on 30 June 2026. The proposal would halve the duty-free quota and double the out-of-quota duty to 50%. Many commentators regard this normalisation of steel protection – and the risk of a WTO challenge it implies – with great concern.
• The EU considerably tightened its export control regime in 2025. On 14 November, the Commission published a new dual-use export controls list (Annex I, Reg. 2025/2003) with new controls on quantum technologies, advanced computing, semiconductor manufacturing and testing equipment, and certain high-precision inspection tools. Notably, the EU opted to include controls where multilateral consensus, particularly among Wassenaar Arrangement signatories, lagged.
• While the Commission’s role in national security-motivated reviews of non-EU investments is of a co-ordinating nature, its role is nevertheless influential. Revisions to the FDI Screening Regulation (EU 2019/452) entered trilogue in June 2025. The Commission’s proposal would make FDI screening mechanisms mandatory in all member states, define a minimum sectoral scope (including critical infrastructure, technologies, and media), harmonise timelines and procedures, and extend coverage to EU-incorporated acquirers that are ultimately controlled by non-EU entities (“EU shell coverage”).

“Partner”: looking for friends in an unfriendly world

• Of free trade agreements (FTAs) with realistic prospects in 2025, only the EU–Chile Interim Trade Agreement is fully operational. Substantive negotiations for the EU–Indonesia CEPA, EU–Mexico modernised agreement, and EU–Mercosur agreement concluded in 2025, but at the time of writing these texts remain pending signature and ratification. The EU–Australia FTA has stalled.
• The EU maintained enhanced market access for Ukraine in 2025, extending unilateral tariff suspensions and streamlining customs and regulatory procedures to support Ukrainian exporters. This reflects the EU’s broader commitment to keep Ukraine economically integrated with European markets.
• The EU engaged in partner dialogues with India, Canada, Australia, and South Africa. These bilateral talks primarily focused on critical minerals and supply-chain risk. While these talks produced soft-law outcomes (principles, working groups, financing signals) and yielded no tangible market-access concessions, they nonetheless reflected a deliberate effort to reduce risk rather than court confrontation.
• At the multilateral level, the EU was unable to overcome the persistent systemic gridlock at the WTO, despite playing a constructive role in alternative dispute resolution and negotiations.

The EU may look back on 2025 as the year of “just enough” – which, given the year it had, is no small achievement. On the geopolitical stage, it took blows without being knocked off course – absorbing external shocks, managing vulnerabilities, and preventing escalation. Internally, 2025 was not a year of legislative fireworks or headline-grabbing breakthroughs; rather, it was a year of introspection, steady implementation, consolidation, and the quiet building of institutional resilience.

Outlook 2026 – The Year of “Let’s See”?

If 2025 was the EU’s year of “just enough”, 2026 is shaping up to be a year of “let’s see” – when Europe’s economic-security architecture is stress-tested externally and expected to deliver results internally. The following are key developments to watch in 2026.

What shapes the EU

• The USA–EU Framework moves from work programme to concrete drafting and implementing acts. Only subsequent implementing legislation and formal ratification by the EU will determine whether US import duties normalise in 2026. Until then, existing retaliatory and Section 232 US tariffs against EU exports remain in place. Once ratified, a WTO challenge is possible if third countries view the arrangement as discriminatory or inconsistent with bound rates.
• The US Supreme Court has heard a pending challenge to the breadth of presidential tariff authority, with a decision expected in 2026. Any curtailment of that authority would reshape leverage in transatlantic bargaining; a ruling upholding it would further entrench executive flexibility over tariff instruments.
• Expect continued Chinese retaliation against EU economic-security measures, ranging from export-licensing delays and domestic determinations to trade remedies. Possible cross-sector retaliation spilling into green energy, food, chemicals, or machinery would further complicate EU supply and value-chain strategies. The informal EU–China facilitation channels seen in late 2025 may not re-emerge.

What the EU shapes

• The EU’s Carbon Border Adjustment Mechanisms (CBAM) moves from “text to teeth”. From 1 January 2026, only authorised declarants can import CBAM goods. Declarants must calculate embedded emissions under the EU method, purchase CBAM certificates, and surrender them annually. Trade partners may lobby the Commission to grant recognition of equivalence with their own domestic carbon constraints. CBAM’s real test is enforcement and anti-circumvention architecture in 2026–2027, and whether it attracts WTO litigation beyond Russia’s 2025 challenge (DS 639).
• The long-awaited EU Economic Security Doctrine is expected in early 2026 as a strategic framework building on the 2023 Economic Security Strategy. According to the Commission, the doctrine would serve as a practical playbook for prioritising economic-security risk factors and standardising the use of tools across instruments such as export controls, FDI screening, FSR, and CBAM. While not a binding legal act, the doctrine is expected to inform future legislative and financing initiatives, including resource allocation to priority sectors and monitoring capacity. This may shift the EU from ad hoc, reactive deployment of isolated instruments towards a more predictable, integrated, and strategic model of economic-security policymaking.
• Expect a second phase of critical raw materials policy in 2026. It remains to be seen whether the planned “RESourceEU” initiative materialises into financing and a support mechanism for selected mining, processing, and recycling projects backed by EU-level funding.
• 2026 will bring the first results of the multi-year overhaul of EU customs, including the abolition of the EUR150 de minimis rule (making small consignments dutiable), platform and marketplace liability, and the introduction of uniform parcel handling fees to fund checks at the border. Broader systemic customs reforms – from an EU Customs Authority to a central customs Data Hub – are ongoing, but unlikely to be concluded in 2026.
• As regards investment screening, the legislative landing of the revised FDI Screening Regulation will be closely watched. 2026 could mark the beginning of a co-ordinated and consistent baseline EU screening model. Member states retain decision rights, so process convergence – not centralisation – is the most likely direction.
• Following a January 2025 recommendation asking member states to assess outbound investments, Brussels is currently co-ordinating a mapping exercise. Brussels will determine in 2026 whether to propose EU legislation towards a real screening regime or continue relying on national regimes supplemented by Commission guidance and co-ordination.
• If market pressure rises and global overcapacity intensifies, the EU may broaden the existing steel and ferroalloy safeguards and extend protection to aluminium. Such a move could trigger a WTO challenge from affected trading partners.
• FTA negotiations with Australia and Thailand may be concluded in 2026, and the agreements with Mercosur, Mexico, and Indonesia may be ratified.
• At the WTO, 2026 will likely clarify whether dispute settlement reform can be achieved or whether the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) and DSU Article 25 workarounds solidify into the long-term de facto architecture of global trade adjudication.

For the EU, 2026 is less about new tools than proof of concept – whether its web of trade and security instruments can mature into a coherent economic security architecture.

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The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC, or its other employees and affiliates.