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Interview: The risk factor in European Union trade policy

The Bertelsmann Foundation’s Christian Bluth argues that the EU’s trade policy focus will need to shift to managing risks. Bluth puts forward a few bold ideas to that end in an exchange of views with our editor Iana Dreyer.

Christian Bluth is Senior Expert and part of the Global Economic Dynamics team at the Bertelsmann Foundation in Germany.

The European Union is a diminishing giant that needs to focus on managing risks in a world and natural environment that is more unstable and prone to harder power games.

A genuine economic defence pact with the United States and a common approach to carbon pricing with Washington and Beijing would be a good way to prepare for a turbulent future.

These are just some of the Bertelsmann Foundation’s Christin Bluth’s messages to the EU in his new book Europe’s trade strategy for the age of geoeconomic globalisation.

The book reflects on the implications of  climate change, demographics, pandemics, populist politics and ‘geo-economic’ power games for the EU’s trade policy.

By 2050, the EU’s population is expected to represent 4% of the global population, the US 4% too. Africa’s share of the global population is set to increase from 19% today to 26% in thirty years. China’s share is to shrink to 14%, down from 18% today and Asia’s more broadly from 59% today to 54% in three decades.

These ‘megatrends’ set the scene and help focus minds on what world to prepare for the EU as a global trading power in future.

“Trade is used more and more as a tool for power projection than for the generation of prosperity,” writes Bluth. “Technology is becoming an increasingly important factor determining competitiveness but also geoeconomic vulnerability or strength”.

The EU, which has so far used trade mainly as a tool for prosperity needs to start thinking differently about its trade policy as a result of such tectonic changes, argues Bluth.

In such a context the EU’s recently released new trade strategy gets many things right. “I was happy to see to see geoeconomics at the forefront of it,” said Bluth.  But while there is a lot of discourse on geoeconomics in the text, Bluth sees little in terms of concrete follow-up.

Speaking to Borderlex, Bluth said that one could not exclude in future that the EU and/or its individual member states be treated by a future large power the same way as, say, China currently treats Australia in an ongoing trade ‘war’, in which China suddenly stopped importing key exports of the trading power as a means to seek political concessions.

Also, as the world talks about reforming the World Trade Organization and the multilateral trading system, Bluth notes that soon, other powers than China in demographically dynamic regions could be the ones pushing the limits of the current rules-based trading system.

Time to think of a genuine ‘economic NATO’

The new trade strategy places a lot of emphasis on WTO reform and safeguarding the multilateral trading system. “It is important to invest political capital in safeguarding the rules-based multilateral trading system and engaging in WTO reform maybe putting more political capital behind this is right,” Bluth said.

But that will likely not be enough.

Bluth believes that the EU will need to be able to defend itself against strategic vulnerabilities in trade policy – and that it is hard to act alone here as the EU’s global influence gradually diminishing. A systematic and deeper rapprochement with the United States would be an appropriate answer in today’s ‘geoeconomic world’.

“When trade and foreign policy intersect, the EU is an actor that struggles to come up with a united voice,” as witnessed currently in the EU’s relationships with China or Russia, for example, where commercial and security or political interests often come clashing.

Thanks to the NATO alliance, “the US helps instill coherence” in the EU’s foreign policy – at least in normal times when no Trump-style policy leader is in power.

“In an ideal world,” argues Bluth, the EU would have a foreign policy adopted at qualified voting majority that would be able to come to a coherent line quickly.” But the requisite institutional changes “will not happen in the foreseeable future”.

So the EU needs a workaround. “The workaround is to engage closely with the United States.”

Hence Bluth’s idea of a genuine EU-US NATO-type of approach to respond to third country economic coercion, where retaliation and threat of retaliation are conceived together across the Atlantic to help reduce vulnerability to coercive trading practices. “It’s not easy to design the geoeconomic equivalent of an Art. 5 – but if we succeed, it might ultimately have a stabilising effect on global trade relations.”

A common EU-US-China approach to carbon border adjustment

The EU’s new emphasis on climate change and sustainability in its trade strategy makes sense too. Global supply chain operators will need to learn to engage in better risk management and government have a role to play to ensure the companies do what they need to do.

The challenge – and opportunity – of the moment is cooperation among the big powers on mitigating climate change, reckons Bluth.

With the Biden administration now in power “we have a window of opportunity where we can have all big industrial nations and big emitters of CO2 having a fairly ambitious stance on their climate objectives.”

The EU has 2050 climate neutrality goal, China has a 2060 goal. The US have not set a date, but the administration has put climate change mitigation at the heart of its policy.

In that context, Bluth says that EU plans for a carbon border adjustment mechanism are at best “second-best”. Adopting a CBAM may be necessary when there is no cooperation amongst big emitters.

“We should use the current moment of opportunity to engage in cooperation to see to what extent you can align different carbon pricing mechanisms so that you don’t have to create any trade mechanisms between these countries in the first place,” reckons Bluth.

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