For months now, trade disputes between the U.S. and China have been escalating. Growth forecasts are therefore being lowered worldwide, most recently by the OECD. The U.S. protectionist measures are directed primarily against China, but the EU is also increasingly being targeted by American trade policy. As a reaction to protectionist measures – regardless of which country takes them – there are five central measures for the EU.
#1 Removing European trade barriers to the rest of the world
This measure is not primarily aimed at “appeasing” a country with a protectionist trade policy. Its purpose is rather to credibly show the rest of the world that the EU takes its commitment to free world trade seriously – even in times of increasing protectionism. To reaffirm its commitment to fair world trade, the EU should also reduce or eliminate its subsidies and quotas for agricultural products. This would eliminate the distortion of competition vis-à-vis emerging economies, which are more dependent on agriculture.
You might also be interested in our post Roadmap 2030: Germany’s Success in A Globalized Economy
#2 Strengthening the European Single Market
If the EU’s export opportunities decline because of a protectionist policy of other countries, this will weaken Europe’s economic development. To compensate for exports to these countries, an expansion of the European domestic market would be a good idea. The areas of service trade, digital trade, cross-border labor mobility and public procurement should be considered in particular.
#3 Supporting multilateralism in the context of the WTO
The World Trade Organization (WTO) is basically the best place to stabilize and intensify the multilateral trading system. In order to strengthen the WTO’s currently limited functional capacity, a reform process is necessary in order to defend and further develop the liberal, rule-based order of the world trading system (see Figure 1).
#4 Conclusion of regional trade agreements
Should an intensification of international trade not take place within the framework of multilateral agreements, regional free trade agreements – such as the agreement between the EU and Japan that entered into force on 1 February 2019 – would be an alternative. The EU is also currently negotiating agreements with numerous other countries. In any case, it must be ensured that such agreements do not weaken the achieved EU protection standards for consumers, the environment, employees, etc.
#5 Moderate retaliation
Retaliatory measures by the EU in the form of punitive tariffs against those countries that impose such duties on EU products are at the expense of the European economy. However, separate punitive tariffs are needed to put pressure on those countries that build tariffs and non-tariff barriers to trade. The European retaliatory measures should be moderate in the sense that the EU only follows suit with regard to the export volume affected and imposes punitive duties on an export volume of the other country that corresponds to the EU export volume affected by punitive duties.