For more than two decades, China has worked to free itself from dependence on Western technology while making the West dependent on Chinese products. It protects priority industries and subsidizes them into becoming export juggernauts.

China engages in economic coercion. Its civil-military fusion strategy powers a significant buildup of its military, surveillance, and disruptive capabilities. Its aggressive territorial claims in the South and East China Seas, and its threats to Taiwan’s integrity, present real risks of military conflict. Beijing and Moscow’s declaration of a “no limits” strategic partnership, and China’s active support for Russia’s war on Ukraine, threaten US and European security, interests, and values.

Although the transatlantic partners are closer in their assessments of the China challenge today than they were four years ago, they approach Beijing from different strategic positions, with different tools, and with different senses of urgency. They have allowed their own bilateral squabbles to get in the way of robust transatlantic efforts to address Chinese aggression. These simmering problems could boil over in 2025.

This series analyzes the impact of China’s rise on transatlantic ties and presents ideas about how to forge a constructive partnership to meet the China challenge. It is based on a yearlong series of CEPA-sponsored workshops of leading European and US experts that I chaired together with Lucinda Creighton under the Chatham House Rule.

The basic question we addressed is whether Donald Trump’s new administration and Europe’s new leaders believe their own bilateral disputes are more or less important than the need to adopt joint or complementary approaches to China. Does the Trump administration believe it can and should fight predatory Chinese economic practices on its own, or forge a broad coalition of countries that could impose far greater costs on China than individual efforts? Are Europeans willing and able to bridge their own considerable differences over both China and Trump’s America to help lead such a coalition?

A joint approach to China should be guided by three Ds: deconflict, disentangle, and deny. The US and Europe should deconflict their own bilateral ties so they do not endanger transatlantic cooperation on China. They should disentangle their economies from uncomfortable dependence on China. And they should deny critical technologies, data, or goods to China that could advance Beijing’s military capabilities and revisionist goals.

To deal with China, the transatlantic partners first need to deal with each other. A transatlantic accord could include European commitments to boost defense spending to 3% or more of gross domestic product by the end of the decade; bolster support for Ukraine; diversify from Russian energy; buy more US-produced liquified natural gas and other energy exports, agricultural products, and defense equipment; and refrain from levying unilateral digital services taxes on US firms. The US, in turn, could commit to maintain an active role in NATO, ensure Ukrainian security and sovereignty, refrain from imposing preemptive tariffs, and explore effective global tax reform.

The two parties should streamline the US–European Union (EU) Trade and Technology Council, now ensnared in an unwieldy tangle of many working parties, with three strong pillars. Pillar One would focus on mitigating US-EU disputes and advancing bilateral cooperation. It could include efforts to strike a quick trade deal to avoid a transatlantic trade war, finalize the Global Arrangement on Sustainable Steel and Aluminum, conclude critical minerals agreements, reduce trade costs by expanding conformity assessments, improve transatlantic risk assessments, and ensure that new EU laws such as the Digital Markets Act do not privilege Chinese and Russian tech over US firms. NATO allies should invoke Article 2 of the North Atlantic Treaty to promote defense-related innovation, and enhance screening of foreign investment in security-related infrastructure, companies, and technologies.

Pillar Two would address the China challenge: extending sanctions on Chinese actors for supporting Russia’s war efforts; improving and expanding coordination on export controls; restricting data flows to China, Russia, and other countries of concern; sharing information on nonmarket policies affecting digital trade; and improving inbound and outbound investment screening. 

Pillar Three would include areas in which the US and the EU could address China-related issues by working with like-minded partners. These include strengthening and expanding cooperation on critical minerals, energy security and climate change; coordinating and enhancing efforts to counter Chinese theft of intellectual property; supporting the use of trusted vendors in digital technologies; reviving and expanding US-EU-Japanese talks on nonmarket economies; and promoting a “Free Road Initiative” to help allies develop more secure and resilient connectivity options.

It is an ambitious agenda. Any effort to forge joint or complementary US-European approaches to China could be a bridge too far. Yet the high stakes warrant exploring what a transatlantic deal on China might look like.

To read the commentary as it was published on the Center for European Policy Analysis (CEPA) website, click here. 

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Negotiations for a free trade agreement (FTA) between the European Union and the Southern Common Market – known by the Spanish abbreviation Mercosur (Mercado Comun del Sur), the Portuguese Mercosul (Mercado Comum do Sul), or Nemby Nemuha in Guarani – have been ongoing since 1999. Implementation of a draft deal signed in 2019 remains stalled and its future has become increasingly uncertain following the election of Argentina’s President Javier Milei and amid opposition from some corners of Europe. Nonetheless, Brazil’s President Luis Inacio “Lula” da Silva and European Commission President Ursula von der Leyen have both indicated renewed efforts to finalize a deal. Something may even emerge in the coming days at the G20 summit in Brazil.

Mercosur/Mercosul

Argentina, Brazil, Paraguay and Uruguay established Mercosur in 1991 through the Treaty of Asuncion with the goal of promoting free trade and fluid movement of goods, people and capital among its member states. The initiative followed the re-democratization processes in South America and was seen as a way to strengthen economic and political ties in the region. In 2024, Bolivia’s senate voted to approve the protocol for the country to become a member (Venezuela is also a full member, but it has been suspended since December 2016).

Throughout the 1990s and early 2000s, Mercosur made significant progress in reducing tariffs and promoting economic integration among its members. Nonetheless, other attempts at regional integration, such as a common currency, have stalled or fallen short, and member states have often had conflicting visions of the bloc’s role. Moreover, although Mercosur has signed various trade agreements with countries such as Egypt, India and Israel, it has yet to strike a deal with the world’s biggest economies: the United States, China and the EU.

A host of issues have contributed to Mercosur’s struggle to fully realize its potential as a regional economic integration project. These include economic asymmetries among member states, as Brazil and Argentina account for nearly 95 percent of the bloc’s gross domestic product (GDP) and 92 percent of its population. Additionally, protectionist tendencies that contradict the bloc’s free trade principles and limit internal market integration often prevail, as do political instability and economic crises among member states.

Hopes to integrate the region are also hampered by low intra-bloc trade, complex and sometimes conflicting regulations between members, weak enforcement of the bloc’s decisions and agreements, poor transportation links between member countries and limited progress on services and investment. Politicization and ideological changes in member states’ leaders have also affected the organization’s cohesion and effectiveness.

The state of Mercosur-EU negotiations

Talks for a trade agreement between Mercosur and the EU began in 1999, marking one of the longest-running negotiations in recent history. The goal was to create a comprehensive free-trade agreement that would cover not only goods and services but also investment, government procurement and intellectual property rights. Both sides saw potential benefits: for Mercosur, increased access to the EU’s large consumer market and advanced technology, and for the EU, expanded opportunities in South America’s growing economies. In the Mercosur countries, an agreement would provide tangible economic benefits and encourage further economic and political integration, strengthening Latin America’s position in global affairs.

Nonetheless, talks floundered due to opposition from European farmers who feared being undercut on price by imports from Latin America, EU environmental concerns and worries over human rights and labor issues, as well as protectionist politicians in both EU and Mercosur countries. In South America, there are concerns over the deal’s impact on local industries and trouble getting buy-in from free trade skeptics like Argentina’s President Milei.

In particular, the election of leftist leaders – Brazil’s President Lula (2002-2010) and Dilma Rousseff (2010-2016); Argentina’s Nestor Kirchner (2003-2007), Cristina Fernandez (2007-2015) and Alberto Fernandez (2019-2023); and Uruguay’s Tabare Vazquez (2005-2010, 2015-2020) and Jose Mujica (2010-2015) – resulted in attempts at “South-South cooperation” through organizations like BRICS and UNASUR rather than the pursuit of stronger ties with Europe.

Forced to look elsewhere to pursue free trade agreements, the EU signed fully fledged agreements with two Latin American groups (Cariforum and the Central America Association), a multiparty trade agreement with three members of the Andean Community (Colombia, Ecuador and Peru), and bilateral agreements with Chile and Mexico. During that time, immense growth in Chinese trade and investment in Latin America helped China easily supplant the EU as the region’s second-largest trade partner and Mercosur’s largest trade partner.

That gap may narrow. If ratified, the EU-Mercosur deal would cover a market of over 750 million consumers – nearly 10 percent of the world’s population – and nearly 20 percent of the world’s GDP. In terms of population, it would also represent the largest trade deal struck by both the EU and Mercosur. Concretely, it would eliminate tariffs on more than 90 percent of Mercosur’s exports to the EU, allowing increased access to the European market for Mercosur’s agricultural goods such as beef, poultry, sugar and ethanol, while benefitting EU manufacturers looking to grow their exports by slashing duties on cars, car parts, chemicals, machinery and textiles. Indeed, according to the European Commission, the FTA would save 4.5 billion euros in duties annually.

Challenges to a European-South American deal

EU member states, particularly France, Ireland and Austria, and potentially Poland, have expressed concerns about the deal’s potential impact on both European agriculture and the Amazon rainforest. Under the proposed agreement, for example, the EU would open its markets to a quota of up to 99,000 tons of beef per year from Mercosur countries, threatening European beef producers. Farmers across the EU have voiced opposition to the agreement through the enormous COPA-COGECA union because they fear being undercut on price. Human rights and labor standards issues have also played roles in recent years, including a letter from civil society organizations calling on the EU to halt the trade negotiations to improve the human rights situation in Brazil under ex-president Jair Bolsonaro (2019-2022).

Environmental organizations have criticized the agreement, arguing it could lead to increased deforestation. They are now backed by European law. In 2023, the EU approved a Deforestation Regulation (EUDR) which applies to imports of seven commodities (cattle, cocoa, coffee, palm-oil, rubber, soya and wood). These products are not authorized for import or sale into the EU unless they meet three criteria, including being deforestation-free. Cognizant of how this could stall things, Brazilian diplomats have been working on overcoming differences on these safeguards.

Changes in leadership in both Europe and South America have affected the negotiations, with some leaders more supportive of the deal than others. Upon assuming Mercosur’s six-month rotating presidency in July 2023, Brazil’s President Lula had declared that closing the free trade agreement was a priority. He was, however, unable to realize this objective as some EU member states maintained their resistance to the FTA.

Conversely, prior to assuming the pro tempore presidency in December 2023, Paraguay’s President Santiago Pena affirmed that the bloc would give up on the EU negotiations and instead pursue trade with other partners. Then, in February 2024, Paraguay’s Foreign Minister Ruben Ramirez stated that Paraguay and Argentina’s governments agreed that negotiations for a free trade deal between Mercosur and the EU would not advance any further.

On the campaign trail, Mr. Milei even suggested withdrawing Argentina from Mercosur, although this threat has yet to materialize. Nonetheless, President Milei did not attend the Mercosur Summit in Paraguay on July 8, 2024, citing “scheduling conflicts.” Despite Mr. Pena and Mr. Milei’s tepid support, Lula and the Brazilian contingent appear confident that a deal is close.

Ultimately, both sides are still working to overcome the remaining obstacles, with discussions continuing on how to address environmental concerns and other contentious issues.

Scenarios

Most Likely: The EU-Mercosur agreement is ratified

Brazil’s President Lula and European Commission President von der Leyen met at the United Nations in September 2024 and indicated that they had ironed out some of the differences in negotiations between the two blocs. Taking them at their word, ratification seems to be the most likely outcome.

The deal could be partially adopted by a qualified majority of at least 15 EU countries – after which it would require ratification by the European Parliament – meaning that a lack of support from say, France and Austria, would not pose an existential threat. Meanwhile, Paraguay’s President Pena and even Argentina’s President Milei could be convinced to sign on given the trade possibilities that the FTA would open. If ratification were to happen, it would likely occur during the G20 meeting in Brazil in November 2024.

An EU-Mercosur trade agreement would have significant implications for global geopolitics. It would boost trade flows, economic integration and political ties between Europe and South America, potentially leading to increased cooperation on other global issues. Modifications in the agreement over potential environmental effects, particularly regarding Amazon deforestation, could influence global climate politics.

A free trade agreement between the two blocs would also affect global great power competition. Notably, the agreement could serve as a counterbalance to the economic influence of China in both Europe and the Southern Cone. The deal would increase EU exports to South America, potentially displacing some Chinese goods while permitting European companies to gain advantages over Chinese firms in sectors like manufacturing, technology and services. This, in turn, might undermine China’s ability to leverage economic ties for political influence in the region. Furthermore, there is a chance that the agreement could compete with China’s Belt and Road Initiative projects in South America, offering Mercosur countries an alternative source of investment and economic partnership.

Beyond this, the agreement would likely promote EU standards in areas like labor rights, environmental protection and intellectual property, which would present a challenge to China’s preferred approaches in these areas. And because increased trade and trade dependence between states tend to produce geopolitical bonds and even foreign policy convergence, closer EU-Mercosur ties could shift Mercosur member states’ diplomatic stances on global issues away from China and toward EU (and U.S.) positions.

Possible: The EU-Mercosur deal remains in limbo

Of course, given the two-decade period of negotiations and then five years of stalled ratification, the status quo may also prevail. It is also possible that the presidents of Mercosur member states fail to reach an internal decision about the deal, kicking the can down the road for a time when there could be greater ideological cohesion in the group. If anything has defined Mercosur to date, it is the lack of a single coherent vision. Conversely, EU negotiators may not be convinced the Mercosur members, and specifically Brazil, can currently meet the environmental standards that the EU demands.

This may not prove to be a death knell for Mercosur, as some have argued, but it would certainly accelerate Mercosur member states’ pivot toward China and toward the single-country bilateral trade agreements that Uruguay, Paraguay and others have recently pursued. It would also weaken Europe’s presence and influence in Latin America while barring the EU from many of the inexpensive commodities that Latin America could offer.

Less likely: The EU-Mercosur deal dies

A dead deal is also a possibility, albeit a smaller one. The free trade agreement has the support of most EU leaders as well as the leftist President Lula in Brazil, and success – or the status quo – seem much more likely than those leaders allowing a disaffected party like those led by Presidents Milei and Pena to scuttle the deal. If this were to happen, however, it would echo many of the tendencies of the prior scenario, but with more severe outcomes.

As before, this would also push Mercosur member states toward China, Indo-Pacific countries and others. However, in more existential terms, a dead deal could also mark the end of the usefulness of Mercosur itself, with member states abandoning cohesion and group negotiations in favor of purely bilateral deals.

Geopolitically, this would reflect the EU’s weak influence on Latin America and the region’s relative lack of importance compared to North Africa, North America or the Indo-Pacific. On a slightly less negative note, this would probably not hamper overall economic growth in Latin America or Europe, given modest growth projections of 0.02 percent for the EU and 0.12-0.16 percent for Mercosur countries from the implementation of the agreement.

To read the report as it was published by GIS, click here.

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In early 2025, a new US administration and European Commission will be in place. It will then be more critical than ever that the United States and the European Union (EU) coordinate their approaches to international trade across a wide range of issues. A significant impediment to this coordination is the persistent temptation—by a range of players in transatlantic circles—to articulate and emphasize supposedly fundamental differences between Washington and Brussels in a way that highlights the virtues of one and denigrates the other. As satisfying as that classic conflict narrative is, it has real-world negative consequences for both parties and should be reassessed by all players in favor of the reality that what unites the United States and the EU dwarfs their differences.

State of play and the strategic imperative

Leading into 2025, cascading joint challenges of supply chain vulnerabilities, climate change, deindustrialization, competitiveness, geopolitical crises, and damaging third-country non-market economy policies and practices—coupled with an international rules system designed for another era—will increasingly drive both sides to use unilateral measures to protect and achieve legitimate policy goals. The US tariffs on steel and aluminum and the Inflation Reduction Act are two such examples; the EU Carbon Border Adjustment Mechanism (CBAM) and Deforestation Regulation are two others. Other measures risking transatlantic friction include the EU’s Corporate Sustainability Reporting Directive, the longstanding Boeing-Airbus subsidies dispute, previous tensions over the EU digital services tax, a failure to reach a critical minerals agreement, and US companies’ compliance with the EU’s Digital Markets Act.

The current trend is not abating. Unless the United States and the EU cooperate on those unilateral measures, there is a high risk that they will result in significant bilateral trade clashes. At a minimum, this will undermine achieving generally shared goals; at worst, it could result in spiraling bilateral trade retaliation.

A significant barrier to transatlantic trade cooperation is the persistent underlying narrative—among policymakers, think tankers, and others—that the United States and the EU approach the world from fundamentally different perspectives. In the memorable words of a distinguished commentator twenty years ago, the United States is from Mars, and the EU is from Venus. This can be an attractive narrative, as it allows each to claim virtues that the other supposedly lacks. It allows Washington to take pride that it is tougher and more clear-eyed than a feckless EU; it allows Brussels to claim that it is more law-abiding and multilateral than the “Wild West” United States.

But this narrative is a choice, not a fact. And the strong inclination to triumphantly celebrate supposed fundamental differences has negative real-world impacts. This narrative finds its way into public statements, is sometimes amplified by a press happy to report on big-picture fights, and can end up deeply embedded in the public consciousness, determining whether or not there is public support for US-EU cooperation. And this narrative of fundamental differences between the United States and the EU—each side claiming the higher virtue—undermines US-EU cooperation.

Further, US-EU cooperation is a necessary but insufficient condition for making progress on these global challenges. In a context in which cooperation with other trading partners is essential, setting up a sharp divide between the United States and the EU encourages those trading partners to take sides and discourages their cooperation with the EU and the United States.

Recent among many examples are the discussions over the Global Arrangement on Steel and Aluminum. To recall, the United States imposed tariffs on steel and aluminum from around the world because of damaging subsidized and non-market excess capacity in China, and the EU retaliated with its own tariffs on US products. Both sides brought dispute settlement disputes to the World Trade Organization (WTO). The United States and the EU de-escalated the situation by agreeing to a temporary two-year settlement in October 2021, under which historical levels of EU steel and aluminum could enter the United States duty free, and the EU suspended its retaliatory tariffs. By the end of October 2023, the EU and the United States were to have reached a permanent arrangement to free up bilateral trade in steel and aluminum and eliminate retaliatory tariffs. It didn’t happen, amid somewhat angry recriminations, but at the last nail-biting minute, Washington and Brussels agreed to extend the truce for another fifteen months to give breathing room to negotiate a deal.

The inability to reach a final arrangement on such a tight timeframe was not surprising. Its goal is as ambitious and unprecedented as it is critical: Climate change is an existential crisis, and non-market-based products threaten key industries and their ability to produce sustainable products. Washington and Brussels urgently need to address these issues, and this novel arrangement is a way to tackle both simultaneously: It would incentivize bilateral trade in environmentally sustainable and market-based products and disincentivize trade that is not. US National Security Advisor Jake Sullivan declared the arrangement “could be the first major trade deal to tackle both emissions intensity and over-capacity.” Negotiating such an agreement is not only novel, but it is challenging in an international rules system that prohibits discrimination against “like” products and that was negotiated when non-market state actors were not much of a factor.

That this was a groundbreaking negotiation addressing critical new joint challenges could and should have been the explanation for the inability to reach a permanent arrangement. That narrative would have supported the parties’ continued work to reach a final arrangement.

Instead, the public explanation from Brussels for the failure was that the United States was insisting on WTO-illegal tariffs and an illegal free pass on the EU’s CBAM as part of the arrangement. The EU’s trade chief, Valdis Dombrovskis, largely stuck to the line ahead of negotiations, stating, “As the EU, we’re committed to multilateralism, to the rules-based global order. We would like to avoid engaging in agreements which manifestly violate World Trade Organization rules.” Later, he hit Washington for failing to provide a clear path to end the tariffs, which Brussels deemed illegal. The United States was less vocal publicly on the failure to reach an agreement, but trade watchers understand the United States’ implied position is that the EU is institutionally hidebound, unwilling to reach beyond currently existing regulations that have failed for decades to fix the problem.

Each of these positions fit into the Mars-Venus narrative—and left each side convinced that it was right. But when talks break down with one party characterized as a rule breaker and the other as being rigid and unimaginative, it does not create an environment for further joint progress. How does the EU then justify negotiating with a rule breaker or ultimately finding a compromise along the lines of something it condemned? How does the United States justify continued discussions with a rigid institution that is unwilling or unable to be creative enough to meet new challenges?

To be clear, the United States and the EU will have good-faith disagreements over their approaches to issues, even those on which they agree. There is nothing wrong with confronting and trying to resolve those disagreements. But the readiness to attribute those disagreements to values-based fundamental differences digs a virtually unbridgeable gulf.

Looking ahead

This dynamic has shaped (and thwarted) cooperative US-EU efforts in numerous areas, including reforming WTO dispute settlement, addressing distortions caused by non-market actions of state enterprises, subsidies, excess capacity, coercion, and a host of other issues. Unless there is a change, it will continue to do so. And the number and significance of areas in which US-EU cooperation will be critical will only increase as joint global challenges mount.

Policy recommendations

There are ways to lay a better foundation for US-EU cooperation going forward:

• Focus messaging on common values and interests. All proponents of stronger transatlantic ties—think tanks, academics, business and nongovernmental organization (NGO) stakeholders, and government officials alike—should emphasize publicly and privately the reality that what unites the United States and the EU in the world trade order dwarfs their disagreements. These proponents should avoid the temptation to signal the virtues of one partner by denigrating the other and creating appealing, but largely false, fundamental differences. Those narratives, setting up epic conflicts between the forces of “good and evil,” are exciting but have profound negative effects in the real world.
• Identify priority areas for coordination and work most intensely and cooperatively on those aspects for which there is maximum overlap of interest. US and EU government officials should focus now, ahead of and in early 2025, on specific priority issues that require the most intense coordination. Issues represented by the Global Arrangement on Steel and Aluminum—climate change, including CBAM and similar measures—and non-market policies and practices should top the list. For each of those priority issues, the parties should identify the areas of strongest overlap in interest and work intensely on those areas. Where there are significant differences in approach that cannot be entirely bridged, those should be cabined off and addressed separately. The United States and the EU should also agree on principles of cooperation that avoid casting aspersions on the other party.
• Build buy-in from all stakeholders. Finally, the United States and the EU’s joint work on identified priorities, and the messaging that accompanies that work, should be strongly informed by the broad US and EU stakeholder community—including business, agriculture, labor, NGOs, think tanks, and others. This would ensure that the priority areas of work are, in fact, those that have a meaningful real-life impact, and would crystallize a positive public narrative supporting that work, both domestically and internationally.

To improve the cooperative dynamic in 2025, the United States and the EU should focus less on whether one is from Mars and the other from Venus, and more on the planet they share: Earth.

L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He served as assistant US trade representative for Europe and the Middle East in the Office of the United States Trade Representative from 2010 to 2023.  

To read the report as it was published on the Atlantic Council webpage, click here.

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It won’t be easy. Ambitions to broaden and deepen the transatlantic marketplace suffer from past disappointments. The Transatlantic Trade and Investment Partnership foundered in disputes over hormone-treated beef and investor-state dispute settlement. The current EU-US Trade and Technology Council has produced only narrow benefits. In the absence of coordination, both Washington and Brussels have resorted to unilateral measures, such as the US Inflation Reduction Act, national security-related tariffs on steel and aluminum, and the EU’s doubling down on its long-proposed carbon border adjustment mechanism. In the future, the need to take urgent unilateral measures will only increase as the dire consequences of failing to act become clear.

A comprehensive transatlantic economic agreement—not a traditional trade agreement—could avoid relitigating the issues that have sunk past US-EU trade and investment initiatives. Rather, learning from the lessons of past efforts, Washington and Brussels must accept that, despite their shared interests, Europe and the United States have decidedly different economic cultures and polities. And any new comprehensive agreement should accommodate these differences while coordinating parallel approaches to the rapidly evolving global economy.

One pillar of such an agreement should be addressing third-country practices. Both the EU and the United States are currently implementing a lengthening list of defensive trade measures—tariffs on electric vehicles and solar panels and investment screening—to protect their domestic industries and workers from subsidized Chinese competition. Unless Washington and Brussels can agree on mutually reinforcing defensive measures, Beijing will simply exploit differences in future US and European market openness. Recent experience with US duties on Chinese subsidized steel and aluminum production painfully demonstrates that unilateral defensive trade measures can adversely impact European producers. Washington and Brussels have spent more time and effort fighting each other than jointly confronting China’s nonmarket practices.

A bilateral comprehensive agreement could identify a set of policies—the types and levels of state subsidies, the use of stolen intellectual property, state regulatory and other protectionist measures—that Washington and Brussels agree lead to “unfair” competition and thus merit parallel defensive measures that do not distort transatlantic commerce.  

The second pillar of a comprehensive agreement should be improved regulatory cooperation. Regulations often seem esoteric, but they set the rules of business behavior. In a world in which market-based economies are in competition with state-driven economies, the United States and the EU need regulations that reinforce each other, do not conflict, and do not inflict unnecessary collateral damage.

Regulatory cooperation is not about adopting identical rules (the United States and the EU have tried and failed before). Nor is it about forcing US and European regulators to sit down and talk with each other (which has produced little in the way of results). Rather, Washington and Brussels need to first agree that in a deeply integrated transatlantic economy, regulations should achieve their objectives without unnecessarily undermining bilateral trade. Second, they need to agree on joint pre-regulation research and information-gathering so that regulators are each working with a common set of facts. And the US and EU regulators need to offer each other’s stakeholders a meaningful opportunity to provide pre-standard-setting and pre-regulation input to minimize business friction.

Finally, successful coordination of external measures and future regulation will not be possible without a third pillar—greater ongoing input from the business, labor, consumer, environmental, and political communities. It is a fundamental principle of democracy that those affected by governmental actions have a right to participate in such decision making. But it is also practical. As the ones directly affected, these stakeholders can ensure that the issues addressed are of practical significance. In this regard, it is particularly important that the US Congress and European Parliament are fully involved as negotiations proceed, to ensure that whatever is agreed upon has a chance of entering into force.

As both Brussels and Washington face an uncertain and challenging 2025 and beyond, they cannot afford to allow past failures to constrain future ambitions. They face too many shared challenges. Going forward, the EU and the United States can either row together in increasingly turbulent waters, or they will most assuredly sink separately.

L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He served as assistant US trade representative for Europe and the Middle East in the Office of the United States Trade Representative from 2010 to 2023. He was chief negotiator for comprehensive trade agreements with the EU and the United Kingdom, as well as trade lead for the US-EU Trade and Technology Council.

Bruce Stokes is a visiting senior fellow at the German Marshall Fund, a former senior fellow at the Council on Foreign Relations and the former international economics correspondent for the National Journal.

To read the blog as it was published on the The Atlantic Council webpage, click here.

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When the UK-EU Trade and Cooperation Agreement was being negotiated it was seen an exception. Instead of opening up trade, its goal was to ease the transition from the United Kingdom being part of the EU’s single market to a relationship primarily based on World Trade Organization rules. 

Whole policy areas typically included in free trade agreements such as public procurement are largely absent of this agreement. The European Union insisted on extensive level-playing field provisions in the expectation of the UK cheating. 

In retrospect, though, the TCA should perhaps have been seen as warning. Modern trade negotiations increasingly take place with a similar underlying atmosphere of suspicion. 

EU-Mercosur free trade agreement negotiations have for some time been moving in the direction of mutual distrust about what the other parties might do. Sometimes it is hard to recall that this agreement is supposed to increase trade. 

There are many more examples, whether from the EU and Australia, or almost anything the United States has done in trade policy since 2016. 

For businesses seeking a renewed free trade agreement agenda there is a fundamental problem. If you don’t change the mood, what is discussed will be more about market access conditions than openness.  

Any agreement reached in this way is unlikely to deliver much growth. 

What we may see in the UK-EU relationship in the coming years is a return to something more positive. There is every reason to believe deepening ties will lead to better agreements. 

Those seeking openness should heed this lesson. Mutual goodwill must be the basis of the free trade agreement agenda. 

Improving the mood between UK and EU 

In the early weeks of the new UK government there has been a noticeable change in attitudes towards the EU. Most notable were early calls from new ministers to their EU counterparts – which would have been unthinkable under previous governments since 2016. 

New foreign secretary David Lammy visited Poland, Sweden and Germany the weekend after the election. Business and Trade Secretary Jonathan Reynolds spoke with Valdis Dombrovskis on the phone and met at the G7 trade ministers meeting in July. 

The UK successfully hosted the second meeting of the European Political Community. Although there were no concrete deliverables, the EU leaders present spoke positively about London’s approach. 

Labour’s plans for enhancing trade relations with the EU remain formally rather modest. Agreements on sanitary and phytosanitary issues, visas for touring artists and recognition of qualifications are the frequently mentioned items. 

There are internal discussions on going further than that. 

Though evidently an awkward topic for the UK, there is a growing awareness of the need to respond to EU asks on youth mobility.  

Joint work on economic security, regulatory alignment and aligning Emissions Trading Schemes are also under consideration. 

Concrete agreements, even negotiations, may be some time away. Thinking has however started on both sides about what these may contain. 

Allowing officials to think creatively 

At a time when trade agreements were driven by more open attitudes, negotiators were empowered to find ways around problems. 

Through ministerial example, UK civil servants have also been given permission to engage with EU counterparts.  

Before the UK election, many officials in relevant areas could not wait to be allowed to test ideas on progressing particular issues with the EU. Now we can expect them to act on this. 

Formally, the EU line is to wait for proposals from London. In reality, many in Brussels will be equally keen to engage.  

Commission officials are already developing their thinking as to how discussions could be structured.  

This isn’t just about those working in EU institutions. Businesses and other stakeholders will take their signals from governments. 

There is ample opportunity for joint UK and EU industry positions. On past evidence this can be an effective tool to help forge agreements. 

Indeed, the extension of generous rules of origins for electric vehicles in the TCA at the end of last year, was considerably helped by joint pressure by the car industry. 

Goodwill is often infectious. Although the pain of recent UK-EU negotiations won’t be easily forgotten, a new picture can be built over this experience. 

The EU-Switzerland talks are perhaps ahead of the UK in this regard. Two previously troublesome relationships are therefore in recovery. 

Whether this can be transferred to other EU relationships remains however to be seen. 

European Union needs to recover its confidence 

If politicians create the impetus for their officials, there will only be a limited amount that EU negotiators can achieve right now. 

Pressure comes from several directions. Overt protectionism across the political spectrum means prospects for France ratifying any future trade agreements seem remote.  

Meanwhile many MEPs from various member states put pressure on trade from various angles, including with environmental, labour and nationalist arguments. 

Summarising the problem, Ursula von der Leyen’s ‘Political Guidelines’ released in July ahead of her confirmation vote as European Commission president for a second term sees trade as both an opportunity and a problem. Talk of “long-term, mutually beneficial partnerships” is undermined by suspicion. 

Translated into day-to-day operations, such messages are easily received by those at the front line as them not being fully trusted. However much it is claimed that the targets are really the third countries concerned. 

Some time ago, when I discussed Indian resistance to trade agreements with informed observers, lack of public trust in negotiators emerged as an unexpected reason for it. In this specific Indian case, there would be suspicions of corruption if too much was given away.  

In the EU or US, it is more likely that creative officials could be seen as part of the ‘deep state’. This makes productive negotiations extremely difficult. 

To have a renewed trade agreement agenda, negotiators have to feel empowered. To use a particular term disliked by some, a safe space must be created. 

Right now, in most EU negotiations, that is not sufficiently present. Negotiations are thus bound to flounder. 

Atmospherics can change this, as we are starting to see with the UK. Though this has to be sustained if there are to be agreement in the end. 

Tricky though it will be, the most siren political voices need to be quietened for significant progress on trade policy and positive associations built with the idea of openness for workers and consumers.  

That’s outside the political mood of the moment and that’s why we’re struggling. 

Businesses need to seek to change to the mood music before demanding more agreements.

To read the perspective as it was published on the Borderlex webpage, click here.

The post Perspectives: Want Trade Deals? Create Good Atmospherics First appeared first on WITA.

Night really does follow day! On Tuesday (20 August) the European Union announced its planned anti-subsidy tariffs on Chinese electric vehicles, a hefty 36.3%.  

On Wednesday (21 August), China retaliated by opening an investigation into EU subsidies for cheese. Affected parties – the European Union, EU member states, dairy producers exporting to China – have twenty days to respond. 

Clever move? 

This move by China is either very clever or very stupid. Or possibly both. Let’s unpick it.  

The first observation to make is that the EU will not have been taken by surprise by the opening of this cheese subsidy case. China invariably retaliates when its trading partners impose restrictions on its exports. In its announcement of the investigation China in fact refers to consultations having taken place with the Commission two weeks ago.  

It is not impossible that it was even choreographed between China and the Commission, so that the Commission can demonstrate to EU member states that there will be a high price to pay if in November the EU imposes definitive duties on electric vehicles.

EU dairy producers in many member states pay the price for a trade spat in a wholly unrelated sector.  

Why cheese? European wine and charcuterie producers must be heaving a sigh of relief as I write, as they were assuming they would yet again be the target of the obligatory retaliation.  

China chose its target carefully. Cheese is a politically high-profile product in European eyes, it comes from a large range of member states – “there’s a cow in every member state” the saying goes. So, the pain will be distributed across the whole of the EU.  

Yet at the same time exports to China – that famously lactose intolerant nation – are limited. In 2023 the EU sent to China just € 190 million worth of cheese. That figure pales in comparison with China’s € 20 billion of electric vehicle sales in Europe now to be hit with a up to 36.3% extra duty.  

This means that the eventual imposition of anti-subsidy duties on Gouda and Pecorino Romano is unlikely to sway member states when they are called on in November to agree definitive duties on Chinese cars.  

China’s announcement is above all political and symbolic, aimed at creating a bit of leverage over the EU but calibrated so as not to represent the opening salvo in a real trade war. 

‘As close as lips and teeth’ 

So far so good. But from another angle one can argue that this Chinese move is misguided and it may come to regret it.  

The investigation was triggered by a request from the domestic industry. 

Knowing how intertwined government and industry are in China – “as close as lips and teeth” as the Chinese proverb has it – it is hardly fanciful to imagine that China’s government instructed industry to lodge the request.  

It is common knowledge that Beijing has a metaphorical drawer of oven-ready dumping and subsidy requests ready to brandish if political circumstances so warrant. 

China has taken great pains in recent years to replace a vacuum left by the United States by arguing that they are reliable multilateralists, wedded to the rule of law.  

An anti-subsidy case launched for purely political and tit-for-tat retaliatory reasons hardly inspires confidence in China’s attachment to those multilateral principles, quite the opposite. It blows China’s narrative out of the water.  Trust, once gone, takes an aeon to restore.  

EU agriculture subsidies proven WTO-proof 

The officials in the Chinese ministry of agriculture will have been tossing and turning in their sleep these last few days. It will be difficult for China to prove that EU cheese benefits from trade distorting subsidies paid to milk producers.  

As an EU official until last year, I was involved in a series of cases in which various trading partners were trying to prove that the income support to farmers paid by the Common Agricultural Policy somehow ended up as a subsidy for the finished product.  

We successfully demonstrated that, in the jargon, there is no “pass through” of money from the primary producers, whether it be with Canada on sugar, the US on table olives, or Australia and Peru on tomato paste or canned tomatoes. In all cases the World Trade Organization or our bilateral dispute settlement courts rejected the other countries’ claims.  

The EU also successfully rebutted claims that direct income support to farmers – who get their dosh irrespective of what they produce or even whether they produce – is product specific and thus a distorting subsidy.  

China will face the same arguments, facts and hurdles in its investigation, along with several WTO precedents and findings that they now cannot ignore.  

The European Dairy Association issued a breezily confident statement declaring the WTO conformity of the CAP toolbox of support schemes from which they benefit. They are right. 

The dog that chased a bus 

Chinese agricultural officials must feel even more ambivalent over the claim – set out in the relevant ministry of commerce notice – that the EU’s environmental payments to farmers represent a distorting subsidy.  

China is following in the EU’s footsteps by progressively paying its farmers to adopt eco-schemes and other forms of environmentally friendly farming practices.  

China would therefore be mortified if its own investigation into EU cheese subsidies were to conclude that green farm payments were trade distorting and thus countervailable.  

This would expose China’s own green subsidy schemes to challenge in the WTO and deal a systemic blow to any country providing green support. China will not want this to happen.  

I am reminded of the story of the dog that used to chase a bus. One day to its surprise it caught the bus. Having caught it, it did not know what to do with it. This is what China may have done in opening this anti subsidy case.  

I am confident nonetheless that if this investigation runs its course, China will determine, will have to determine, that the payment schemes to milk producers do not represent a subsidy to cheesemakers.  

Unless the political relationship with the EU sours dramatically, China will do little more than introduce some minor face-saving duties on cheese, if anything.  

Conclusion? The Chinese action is neither clever nor stupid. Only time will tell. 

John Clarke is a former Director for International Relations at the European Commission and senior EU trade negotiator. He previously headed the EU Delegation to the WTO and UN in Geneva. 

To read the commentary as it was published on the Borderlex webpage, click here.

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The EU’s dedication to advancing environmentally-friendly technologies and mitigating the impact of greenhouse gas emissions is being investigated following the implementation of tariffs on Chinese electric vehicles. This decision raises significant concerns regarding the alignment and stability of the European Union’s environmental and trade policies. This apparent contradiction highlights the complex interplay between economic interests, environmental objectives, and global trade dynamics.

The air quality issue throughout Europe is a mix of positive developments and persistent issues and challenges for the greener future. In recent years, there has been a noticeable decrease in pollution levels in numerous cities, thanks to the implementation of effective policies, local initiatives, and improved air quality management practices. Nevertheless, numerous urban areas continue to grapple with higher pollution levels that surpass the health recommendations set by the World Health Organization.

The ongoing problem of air pollution in EU urban areas has led to a concerning number of premature deaths, estimated to be around 400,000 each year. This highlights the urgent need for effective measures to improve air quality and protect public health. There are ongoing challenges in effectively communicating air quality issues, garnering public and political support for additional measures, and ensuring policy coherence across different administrative levels. Although there have been some positive outcomes from local initiatives such as the promotion of cycling, and introduction of low-emission zones, it is clear that further efforts are required to achieve consistent and comprehensive improvements in air quality throughout Europe.

Role of Vehicles in Europe’s Air Pollution

Air pollution continues to be one of the significant concerns for both public health and the environment in Europe, particularly in urban areas, where transportation plays a major role as a contributor. Despite recent advancements, pollution levels caused by vehicles, such as cars, vans, and trucks, still surpass the recommendations set by the World Health Organization (WHO). This unfortunate reality results in approximately 330,000 premature deaths each year in the EU. The annual health costs attributed to road transport pollution are estimated to be between €67-80 billion, with a significant focus on diesel vehicles.

The EU’s Ambient Air Quality Directive (AAQD) and Euro standards have been subjected to criticism for their perceived inadequacy in addressing these issues. The latest Euro 7 standards, scheduled to take effect in 2028, are widely regarded as ineffective and unlikely to have a substantial impact on emissions reduction. Although there have been some advancements, such as the implementation of zero-emission and low-emission zones in urban areas, there are still areas that need improvements. Implementing effective solutions, such as enhancing fuel quality and adopting cleaner technologies, is of utmost importance in mitigating pollution and safeguarding public health.

EU’s Environmental Policy

The EU’s environmental policy is driven by a commitment to precaution, prevention, rectifying pollution at its source, and holding polluters accountable. Its primary objective is to tackle pressing challenges such as climate change, biodiversity loss, and pollution. The policy is based on Articles 11 and 191-193 of the Treaty on the Functioning of the European Union (TFEU) and covers a range of environmental issues including air and water pollution, waste management, and climate change. In this respect, the notable advancements include the 2019 European Green Deal, which places a strong emphasis on environmental issues and sets the ambitious goal of achieving climate neutrality by 2050. The 8th Environment Action Programme (EAP) sets forth a comprehensive set of goals for the year 2030. These goals encompass a wide range of areas, such as reducing greenhouse gas emissions, building climate resilience, transitioning to a circular economy, eliminating pollution, and safeguarding biodiversity.

Horizontal strategies of the EU have encompassed various aspects such as sustainable development and biodiversity. The 2024 Nature Restoration Law aims to restore land, sea areas, and ecosystems. On an international level, the EU actively participates in global environmental agreements, including the Paris Agreement. The Aarhus Convention guarantees the involvement of the public in making environmental decisions. Implementation requires a coordinated effort at the national, regional, and local levels, with the support of tools such as the Environmental Implementation Review and the European Environment Agency (EEA).

EVs are Better for Environmental Sustainability   

A recent report from the European Environment Agency (EEA) highlighted the environmental benefits of battery electric cars compared to petrol and diesel vehicles. The report, “Electric Vehicles from Life Cycle and Circular Economy Perspectives,” emphasized the overall eco-friendliness of electric vehicles throughout their entire life cycle. Although, the production of EVs may result in higher emissions, but their overall impacts on greenhouse gases and air pollutants is significantly lower throughout their lifespan. At present, electric vehicles produce emissions that are approximately 17-30% lower than those of traditional petrol and diesel vehicles. This percentage could potentially increase to 73% by 2050 as the carbon intensity of the EU’s energy mix continues to decrease.

The EVs contribute to the improvement of local air quality by reducing emissions along with minimized release of particulate. In addition, the EVs help to decrease noise pollution, particularly in urban environments. The report highlights the potential for mitigating these impacts by implementing circular economy practices that prioritize the reuse and recycling of batteries.  The EEA highlighted the concerns rising in EU transport sector emissions since 2014. Preliminary data from 2017 reveals a significant 28% increase in emissions compared to 1990 levels. Despite significant increases in registrations of battery electric vehicles and plug-in hybrids in 2017, these types of vehicles still make up a relatively small portion of total new registrations. 

EU’s Protectionism Against Chinese EVs

In a recent statement on 8 May, 2024, Ursula von der Leyen, the President of the European Commission, expressed her concerns regarding the influx of affordable EVs from China into the European market. In response to this, the EU launched an investigation into manufacturing of EVs in China for potential subsidies in 2023. 

A regulation was enacted by the European Parliament on June 8, 2016, with the objective of safeguarding domestic industries within the EU from the impact of subsidized imports originating from non-EU countries. An official notice released on July 3, 2023, stated that Chinese electric vehicles were having a detrimental impact on the electric vehicle industry in the Union. The EU’s approach demonstrates a strong alignment between public and private sectors. European manufacturers and suppliers involved in the complaint were granted complete immunity and anonymity, a privilege that was not extended to Chinese firms. In addition, prominent companies such as Tesla and Volkswagen, who have manufacturing operations in China, are not subject to these tariffs. The EU has expressed concerns regarding the impact of China’s industrial overcapacity on EU-China trade. 

China, on the other hand, has accused the EU of engaging in “foul play.” China has raised objections to these tariffs at the World Trade Organization (WTO). The European market for electric vehicles (EVs) is significant, with projections indicating it will reach a value of USD 145 billion by 2024 and experience a growth rate of 12.5% by 2028. The electric vehicle market has experienced substantial growth, with a notable 25% surge in sales during the first quarter of 2024 in comparison to the corresponding period in 2023. The sales growth in 2022 was also 25%. 

On a global scale, electric vehicles (EVs) are projected to make up 20% of all vehicle sales. China is expected to dominate the market with a 45% share, followed by Europe with 25% and the US with 11%. Chinese manufacturers, including BYD, are strategically investing in European production facilities, such as a new plant in Hungary, in response to EU tariffs and trade restrictions. In addition, they are establishing collaborations with European EV companies to lower expenses and considering the possibility of manufacturing EVs in Europe, which could help minimize the effects of tariffs. In July, there was a significant decline of 45% in Chinese EV exports to the EU, despite the efforts made previously. Overall, the EU’s protective measures against Chinese EVs are motivated by considerations surrounding market competition and trade imbalances. Chinese companies are responding to the changing landscape by expanding their operations in Europe and forging important partnerships. However, the current trade tensions serve as a reminder of the challenges involved in international trade within the fast-paced electric vehicle industry. 

EU’s Concerns and Response 

The European Union’s investigation into Chinese-made electric vehicles (EVs) in 2023 underscores concerns regarding the potential unfair competitive advantage created by Chinese government subsidies. According to the EU, there are claims of significant state support for Chinese EV manufacturers, resulting in reduced production costs and enabling them to offer lower prices compared to their European counterparts. The market distortion has the potential to negatively impact European EV producers, resulting in a decrease in their market share and profitability. This, in turn, could lead to financial losses and put them at a competitive disadvantage. The investigation conducted by the EU seeks to evaluate the potential violation of trade regulations and the negative impact on the European industry caused by these subsidies. In response, the EU has the option to implement tariffs or other trade barriers in order to address these unfair practices and safeguard its domestic market.

On July 3, 2023, the European Commission implemented provisional countervailing duties on Chinese battery electric vehicles (EVs) in response to concerns regarding unfair competitive practices. The duties for BYD, Geely, and SAIC were determined to be 17.4%, 20%, and 38.1% respectively. These rates were established after conducting tests on electric vehicle samples and evaluating the subsidies provided. Companies that have not undergone testing are subject to a 20% duty, whereas those that have refused to cooperate are subjected to the highest rate. The EU’s action is intended to address the perceived imbalance caused by Chinese government subsidies, a matter that China disagrees with. The responsibilities will be applicable to electric vehicles that have been registered starting from March 7, 2023. 

Paradoxes of EU’s Environmental Policy

The EU’s tariff regime on Chinese EVs brings attention to certain contradictions within its environmental protection policies. Although the tariffs have been implemented to protect European manufacturers from unfair competition resulting from Chinese subsidies, there is a potential conflict with the EU’s environmental protection goals. The imposition of tariffs on electric vehicles could potentially impede their widespread adoption and hinder the overall progress in reducing emissions.

This short-term protection of domestic industries could potentially hinder the long-term shift towards cleaner technologies. In addition, it is important to consider the broader impacts of making EVs more affordable, as this can greatly contribute to global climate efforts. The tariffs fail to adequately acknowledge the environmental consequences of EV production materials or take into account the wider advantages of higher EV adoption, which could undermine the EU’s overarching environmental sustainability goals.

To read the analysis as it was published on the Eurasia Review webpage, click here.

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With barely two weeks until polling day, it is worth exploring why the incumbent Conservatives and their main challenger Labour are both avoiding the topic of trade relations with the EU – and other key areas in international trade that deserve the next government’s attention.

The post-Brexit economy and UK–EU trade

While the UK may have notionally ‘taken back control’ over policy areas such as trade and migration, as campaigners for Brexit insisted it would, empirical evidence suggests that leaving the European Union has negatively affected the UK economy. Slower GDP growth and slower growth in trade than comparable economies are key indicators of this.

The UK is a very open economy and the value of trade relative to GDP is close to 70 per cent. More than one-fifth of UK jobs are directly or indirectly associated with the exporting activities of UK firms. Average wages tend to be higher in exporting sectors and importing offers the country access to a greater range and quality of consumer goods and intermediate inputs. All these factors are important drivers of prices, of UK firms’ competitiveness, and of future investment and economic growth in the country.

Approximately 50 per cent of UK trade is with the EU, and many UK firms’ supply chains are closely linked to the EU. Hence, it is hard to discuss international trade (policy) without mentioning EU trade (Brexit). As such, it is clear to see why parties struggle to discuss international trade without talking about the UK’s trade and trade relations with the EU.

The parties’ recently published manifestos do offer some main approaches to international trade. Broadly speaking the Conservatives seek a continued focus on free trade agreements as well as ‘freeports’. They plan to establish a UK-wide body called InterTrade to promote more internal trade, and they reject any closer relationships with the EU.

Labour seeks improved relations with the EU but is ruling out re-joining the customs union, the European Single Market, and the free movement of labour. It proposes a more judicious approach to free trade agreements, and has committed to publishing a trade strategy.

But both manifestos lack detailed policy on trade. Similarly, their many daily policy announcements (roughly 48 to date) neglect to mention international trade, particularly with the EU. So why aren’t the two main parties talking about trade with the EU?

Don’t mention the EU

It is pretty clear why the Conservatives don’t want to talk about the EU. Brexit, which they championed, has offered few economic advantages, nor have migration levels come down. The government has failed to organize itself to take advantage of sovereignty effectively. Almost all types of firms (especially SMEs) are critical of Brexit, and opinion polls suggest that a majority of the population now regrets it.

Within the Conservative party, the party leadership faces pressure from its Eurosceptic right wing over migration levels and many MPs are strongly against closer alignment with the EU. They are now getting very nervous about rising support for the populist Reform party.

Labour is involved in its own balancing act over the EU. It does not want to appear to override or disparage the electorate’s decision in the 2016 referendum on leaving the EU. Nor does it want to stir up the passions and antagonisms surrounding Brexit.

Closer integration with the EU will come with closer alignment to EU rules and regulations. Such a stance for Labour risks being portrayed as being ‘anti-Brexit’; it fears the (over-)reaction of the UK’s right-leaning press to any suggestion of surrendering sovereignty to the EU.

Labour also recognizes that any Brexit-related promises that involve negotiation with the EU will be hard to deliver, given the EU’s lack of trust in the UK. Added to this, some pro-Brexit sentiment still exists in the Labour Party.

What the parties’ trade policies should consider

Policy detail in the manifestos is lacking on trade as it relates to climate, on other types of agreements beyond free trade agreements (FTAs), and on services trade. The climate crisis is the biggest crisis the world faces, and trade policy is an important part of the toolkit needed to address it. The Conservative manifesto contains no discussion on this, while Labour has only a brief statement in support for a carbon border adjustment mechanism.

Too much discussion of trade policies focuses on FTAs. While FTAs are important, the scope of trade policy is much broader – ranging from bilateral agreements on specific issues such as mutual recognition, to digital agreements, critical minerals partnerships, technology cooperation, as well as multilateral cooperation in the World Trade Organization.

On services trade, each of the manifestos only manage a scant one or two mentions despite the fact that the UK is predominantly a services economy, and services account for around half of UK exports.

Strong arguments have been made in the past in favour of creating an independent Board of Trade. Such a body would contribute to more coherent and consistent trade policy in the UK and would provide independent analysis and assessment. In previous speeches, Labour supported this proposal but it is not in their manifesto. Should Labour get elected, it is to be hoped the proposal will be considered.

Over the course of the next parliament, public pressure for closer alignment to the EU may well grow – which may involve the government considering re-joining the European Single Market. As the pains of the Brexit political traumas diminish, the UK’s trade with the EU is likely to rise up the political agenda. Whoever wins the election, more open discussion of international trade is going to be important to the UK’s future economic success.

To read the expert comment as it was published by Chatham House, click here.

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The Commission’s actions on EVs may not be the last taken against clean technology from China, with trade measures having recently been considered for two more major pillars of Europe’s energy transition. 

An anti-subsidy probe into Chinese solar panel manufacturers bidding for a public project in Romania was closed after the targeted companies withdrew from the process. 

An investigation into Chinese wind turbine suppliers is ongoing. Both were launched under the new Foreign Subsidies Regulation. 

The risks of tariffs on decarbonization technologies

The EU is anxious to protect its companies from what it sees as unfair competition. It has bitter memories of the early 2010s, when cheap Chinese panels all but destroyed the European solar industry. 

The EU is right to identify clean technology as a crucial strategic industry, and to take action to mitigate the negative consequences of surging imports from China. Against a volatile geopolitical backdrop, it can be worth paying a premium for goods made at home. 

But decarbonization technologies like solar panels, wind turbines and electric vehicles share a characteristic that sets them apart from other traded goods. When swapped for fossil fuel alternatives, they reduce the quantity of planet-warming gases being pumped into the atmosphere. They are needed in vast quantities, and in very short order, to give any chance of avoiding the worst impacts of climate change. 

The EU has a legally binding target of net zero greenhouse gas emissions by 2050, and an intermediate target of at least a 55 per cent reduction by 2030, relative to 1990 levels. A target of 90 per cent has been proposed for 2040. 

These targets are ambitious, even if they are insufficient to limit warming to 1.5°C. With 2022 marking a reduction of 32.5 per cent, accelerated and sustained action will be needed. This implies deploying mass-market clean technology products like solar panels and electric vehicles in very large numbers. 

The costs of European manufacture

The EU wants these to be manufactured within its borders. In her 2023 State of the Union address, Commission President Ursula von der Leyen was unequivocal: the EU’s clean tech future should be made in Europe. 

The Green Deal Industrial Plan, announced in early 2023, seeks to do this by cutting red tape, increasing access to finance, boosting skills, and promoting fair trade. The Net Zero Industry Act sets a target for the EU to manufacture at least 40 per cent of the so-called strategic net zero technologies it deploys each year, by 2030. 

The Act proposes to achieve this through measures including requiring public authorities to consider non-price ‘sustainability and resilience’ criteria when procuring renewable energy. This would in theory increase the attractiveness of goods made on European soil. 

However, this requirement can be disregarded if it implies ‘disproportionate’ additional costs. It is therefore doubtful it will be enough to offset the large difference in production costs between Chinese- and EU-made solar panels, for example. 

Building the factories needed to hit the Act’s manufacturing targets for solar panels and batteries is estimated to require nearly $70 billion by 2030. 

But unlike in the United States, where the Inflation Reduction Act offers lavish subsidies, the EU’s Green Deal Industrial Plan provides little in the way of new finance. 

The Plan loosens state aid rules, enabling member states to subsidize green industry, and proposed a new EU-level fund for investing in strategic clean technology projects. 

However, the return of EU-wide fiscal rules will restrict government spending, including on the transition; the European Sovereignty Fund was scaled back and ultimately became a platform to mobilize private finance. 

Current levels of investment in the EU’s transition fall far short, with the annual climate investment deficit estimated at €406 billion, or 2.6 per cent of GDP – implying that climate finance will need to roughly double to meet 2030 targets. 

A June 2023 report by the European Court of Auditors found ‘no information that sufficient financing will be made available to reach the 2030 targets’. Climate-focused public spending is also likely to get squeezed by an increasing focus on security and defence.

With financial resources constrained, and the timeframe tight, the unit cost of each product needed to achieve the transition becomes an extremely important variable. 

And when it comes to cheap, clean technology, China is the undisputed world leader. Two decades of consistent and targeted industrial policy, combined with the benefits of a huge domestic market, mean that China today produces extremely competitively priced, high-quality, low-carbon goods. 

In 2023, solar modules in China were being manufactured at a cost of $0.15 per watt, compared to $0.30 in Europe. In France in 2023, the cheapest electric vehicles were priced between €22,000 and €30,000 ($24,000 – $32,500) while in China, over 50 electric models were retailing locally for less than CNY 100,000 ($15,000). Analysis by think tank Transport & Environment found that European automakers have prioritized large, premium electric vehicles at the expense of compact, affordable models. 

All else being equal, anything which stems the flow of the cheapest low carbon products will increase the cost of the transition and slow it down, increasing the risk of the EU missing its emissions reduction targets. 

These are not the only risks, however. If solar panels and wind turbines become more expensive, it will ultimately feed through into higher electricity prices, increasing the cost of living for citizens and exerting a downward pull on the fragile competitiveness of European industry.

To read the full expert comment as it was published by Chatham House, click here.

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Specifically, the TTC should incorporate a trade agreement framework informed by regular formalized stakeholder input. This framework would focus on (1) avoiding the full range of trade barriers arising from new technologies and (2) tailoring cooperative efforts in a way that allows the United States and the EU to promote their shared values globally and prevents small disagreements from impeding progress. Significantly, a trade agreement foundation for trade and technology cooperation would create huge efficiencies and go a long way toward ensuring US-EU engagement on issues of common interest from administration to administration and from commission to commission.

This recommendation is based on the following elements:

Break down the artificial divide between trade and technology

Let’s start with some basics. One of the original reasons for creating the TTC was to head off unnecessary trade barriers arising from new technologies and diverging efforts to regulate them. Legacy trade barriers coming from deeply entrenched US-EU regulatory divides had proven extraordinarily difficult to bridge. Think, for example, of biotech food, hormone-treated beef, pathogen reduction treatments for poultry (the infamous “chlorine chicken”), and conflicting standards on a wide range of industrial products.

One of the main ideas behind the TTC was to get ahead of the curve and avoid the new-tech version of “chlorine chicken”—that is, to identify and prevent unnecessary trade barriers to products of new technologies from arising in the first place. Another related goal was to ensure that the United States and the EU could globally promote trade rules on products of new technologies that reflect their joint values of transparency, the rule of law, human rights, and high labor standards.

As the TTC has proceeded, however, the tendency in the public narrative has been to create an artificial divide between “technology” and “trade.” This has led to a deeply unhelpful but persistent narrative that the TTC is making good progress on “technology” but is lagging on “trade.” What is probably meant by this is that officials are having useful discussions on initiatives such as an artificial intelligence (AI) roadmap, but that they haven’t resolved long-standing bilateral disagreements over, for instance, bilateral mutual recognition agreements on pharmaceuticals or machinery.

Of course, the officials haven’t: The TTC never set out to provide additional leverage to resolve such deep, long-standing divides, so it makes no sense to judge its success on that basis. (A comprehensive agreement negotiation would do that, but that’s another topic.) It’s not an accident that long-standing disputes such as hormones in beef or pathogen-reduction treatments for poultry have not been on the TTC’s agenda.

To illustrate the problem, treating AI or other new technology product standards as a distinct category from “trade” ignores the fact that having two sets of standards that conflict with each other unnecessarily represents the ultimate trade barrier.

The TTC would benefit from getting back to one of its original goals: avoiding unnecessary bilateral barriers to trade in new technologies, and collaboratively promoting a joint vision of how such products should be regulated on a global basis. This includes early bilateral engagement on proposed legislation—which is where trade barriers often arise.

Sharpen the TTC’s focus on specific common trade goals

Old habits die hard. When the United States and the EU sit down together on trade issues, it’s hard to avoid complaining about what the other side has done or pressing the other side to do something it doesn’t have an interest in doing. This is not to minimize the importance of such discussions: The parties need a forum to complain and advocate.

But the TTC should have a dedicated trade space where the parties can focus on building concretely on the things they can agree on, and to shape and nuance those issues so they are maximally congruent, shedding tangential disagreements. The approach of pressuring the other party to agree reluctantly to the other’s pet initiative simply has not worked in the TTC. (It can work in the context of a comprehensive trade agreement, where there are trade-offs and momentum, but it’s much harder in a cooperative forum such as the TTC).

I can attest from many years as a trade negotiator, especially with the EU, that identifying areas of agreement is not always easy. This is in part because a standard trade negotiation tactic is to turn any proposal, however mutually beneficial, into an “ask” that can be pocketed and used as leverage to get something else. If one side suggests, for instance, that the parties work on compatible standards for a new product produced by both parties, the trade negotiation instinct of the other side will sometimes be to make those discussions contingent on a negotiation it wants that the other does not. This discourages genuine cooperative proposals and attracts proposals on which there is disagreement, hindering cooperation.

The TTC should recognize this dynamic and deliberately avoid it, isolating the areas of agreement and disagreement, and “parking” the latter so the agreed areas can move forward without hesitation or caveats.

To illustrate, the United States and the EU undeniably have a huge common interest in opposing and defending against the increasing impact of a growing number of harmful international trade policies and practices. It is also true, however, that the EU is more hesitant to associate those practices with a particular country, such as China. This difference hobbles cooperation and encourages distancing because cooperation can be interpreted as general broad alignment vis-à-vis China, and the EU doesn’t want to associate itself with all US views on China (or its perception of those views).

One solution to this impediment would be to focus on countering specific harmful trade practices and policies and/or sectors, and perhaps even avoid characterizing the work as China-specific or endemic to any particular system, “nonmarket” or otherwise. In other words, strip out any divisive “ideological” aspect of the issue and move forward on those core elements that are not divisive. This would also sidestep the facile and false binary choice between engagement and disengagement with any particular World Trade Organization (WTO) member. 

Another practical example of this approach: The United States and the EU have significant and long-standing differences between how they define “international standards” in the WTO agreement, and a fight on that issue is tempting whenever they sit down to discuss standards compatibility. But they can and should pragmatically work to avoid future standards conflicts—a huge potential trade barrier—without taking on that ideological disagreement. The same is true for streamlining how products are assessed for conformity with regulations in each of their markets, in which they have a common interest, but widely divergent approaches. 

As a final example, the United States and the EU have a strong common interest in assuring that labor rights are respected around the world, but very different approaches to enforcement—to oversimplify, the United States’ use of trade tools versus the EU’s use of cooperation and persuasion. The same is true of environmental protections and trade. The TTC should avoid taking on this long-standing difference in approach and focus instead on joint practical initiatives that reflect where both sides agree.

To be clear, the TTC has ultimately cooperated well on many issues, but could eliminate much wasted time and energy by deliberately focusing on and shaping the cooperative issues, and not letting the disagreements and complaints slow efforts down.

Establish a durable institutional foundation

US-EU trade fora have, for decades, been a bit ad hoc, designed and developed by particular US administrations or EU commissions, only to be reformulated and reinvented after the next election. That reinvention has several negative effects: It takes significant time and negotiating effort to reinvent procedures. It lacks the durability of an ongoing framework, even though the substance of the subsequent discussions often remains similar. And it lacks a structured mechanism for receiving and incorporating stakeholder input across the broad range of trade issues—input that is critical to anticipating commercially meaningful potential barriers and to identifying and pursuing joint global objectives.

Contrast this process with bilateral meetings that are held under official Trade and Investment Framework Agreements, which have an agreed framework for participation by the agencies, regularly scheduled meetings, and, generally, a regularized formal process for receiving and incorporating stakeholder input. Further, under such framework agreements, regular meetings generally continue from administration to administration, since they are required by the agreement, without a new administration needing to redesign the forum or create a new initiative or set a schedule. This helps avoid the impression that the forum itself solely represents the priorities of any one administration. Policies will evolve from one administration to the next, of course—although targeting core issues of common interest will minimize differences—but the foundational mechanics and logistics, including stakeholder participation, are already in place. The result is both efficiency and legitimacy of the process that brings the parties together.

Indeed, the absence of such an ongoing trade agreement structure between the United States and the EU is notable, given that it is practically a norm with other trading partners.

When US and EU officials meet in Belgium in April, they will be right to celebrate that the TTC has been a significant plus for the transatlantic relationship. At the same time, the TTC could be even stronger and more durable by incorporating a specific trade agreement framework informed by regular formalized stakeholder input. As noted above, two features should take priority going forward: The TTC should aim to avoid future trade barriers arising from new technologies, and it should work to promote US and EU shared values globally and prevent small disagreements from impeding progress. Building on the success of the TTC by adding the permanent structure of a trade agreement framework would help keep the US-EU trade relationship steady and on course, even as the occupants of the White House and the Berlaymont building change over time.

L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He served as assistant US trade representative for Europe and the Middle East in the Office of the United States Trade Representative from 2010 to 2023. He was chief negotiator for comprehensive trade agreements with the EU and the United Kingdom, as well as trade lead for the US-EU Trade and Technology Council.

To read the full blog post as it appears on the Atlantic Council website, click here. 

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