Avoiding Self-Inflicted Trade and Economic Wounds

By Paul Driessen

President-elect Trump says he will impose tariffs on foreign products to raise revenue and respond to practices that give foreign manufacturers unfair advantages over American companies. Europe’s debates over similar issues offer relevant guidance, advisories, and impetus. 

As the European Union looks ahead to the next five-year term of its new European Commission and Parliament, officials talk about playing “its full part on the world stage in geopolitics.” Europe and the world have heard of it since Ursula von der Leyen promised a “geopolitical Commission” at the start of her first presidential term in Brussels in 2019. It didn’t happen then, and it’s not likely to happen now. 

To be fair, it was a challenging five years. The unprecedented COVID pandemic kept the EU focused on domestic healthcare questions, lockdowns, debt financing, and student learning. Russia’s Ukraine invasion shortly after ensured that European policy priorities remained largely regional. 

However, possibly the most significant blow to her dream of a geopolitical Commission was entirely self-inflicted: the EU’s obsession with the utopian Green Deal. 

The Green Deal regulatory regime undercut EU competitiveness, particularly in agriculture and industry, by raising energy and petrochemical prices to exorbitant levels. Thus, the European Commission's international ambitions were reduced to a domestic protectionist agenda designed to hobble potential competitors by erecting non-tariff barriers that affected and infuriated Europe’s trading partners, whether they compete on productivity or cost. 

Citing the “climate crisis,” the EU demanded that the rest of the world adopt its own crippling regulations – or risk losing access to its markets. Soaring prices for “clean, renewable, sustainable” wind and solar energy (and duplicative backup power) destroyed jobs, made home heating and food extremely expensive for many families, and reduced living standards. 

The EU Deforestation Regulation would have required European trading partners to certify the ecological purity of entire supply chains. Brussels’ recent U-turn on the EUDR demonstrated that the law was a huge miscalculation in climate and trade policymaking. 

Even the famously “green” Biden-Harris administration opposed the Brussels proposals as too onerous and too hastily introduced. Imagine having to document and geolocate every cocoa bean in a bar of chocolate, every particle of coffee in an espresso, every chip of wood in a particle board, or every gram of cobalt in backup and electric vehicle batteries. Only Brussels would concoct such insanity!

Even Germany, the EU’s richest economy and arguably Europe’s most vocal advocate of planet care, balked at the prospect of implementing the EUDR. 

If geopolitics truly matters to the EU in the coming term, the EU Commissioner will return to core principles on trade and not invoke trade suppression. That means identifying the biggest market opportunities. Europe, India, and ASEAN are obvious examples. 

Equally obvious, alienating the USA – the biggest and wealthiest market in the world, capable of self-reliance and in-kind responses to hostile trade regulations – does not seem like a smart idea. 

The European Union is interested in advancing international commerce rather than wantonly raising regulatory barriers that developing countries cannot afford and developed economies won’t accept. 

European economies are exporters. As with the USA, EU jobs and financial systems depend on selling high-value goods and services. A mercantilist, capricious, quasi-lawless global economy – like China’s – is not in Europe’s (or America’s) interest. 

The starting point should be liberalizing, rather than raising barriers, and working with allied trading partners with similar principles. And yet, the EUDR is a perfect example of a regulation that has the EU actively working against its closest partners; it’s also been disastrous for the EU’s international image. Indeed, other than a few single-issue NGOs and a handful of unelected EU officials, the Commission would be hard-pressed to find any EUDR proponents.

Second, trade policy needs to be strategic, not dogmatic. China and Russia – especially in their growing alliance with Iran, North Korea, and other BRICS countries – are the most obvious and significant threats to the global economic order, and Europe has a responsibility to mitigate such threats. 

Weaponizing trade is justified when the goal is preventing carnage in Ukraine or stopping hacking or surveillance equipment from being installed in the grid and other networks. Similarly, deliberate attempts to dump subsidized products or flood markets should not be confused with free trade and should be addressed accordingly. In such cases, a smart, deliberate, targeted response is warranted. 

One problem with the Green Deal’s EUDR lies in its indiscriminate, dogmatic application of punitive measures, including against allies like Malaysia, Mexico, Thailand or the United States. Moreover, materials targeted under the EU Deforestation Regulation (rubber, coffee, cocoa, palm oil, and cobalt) are key ingredients for Europe’s own supply chains

Palm oil from Malaysia, for example, is an ingredient in some of Europe’s most famous food and cosmetic brands. Besides, Malaysia already has its own sustainable palm oil standard, so there is no need for additional punitive EU regulations. 

Similarly, Brussels shouldn’t impose deforestation restrictions on cutting trees for wind and solar metals and minerals – if trade-partner countries are trying to comply with EU climate and environmental rules. 

Wage, child labor, and deforestation standards for cobalt mining for wind energy and battery technologies are problematical primarily because China, the Democratic Republic of Congo, and their ore producers deliberately mix all ores – from artisanal and corporate mines alike. That makes it impossible to determine which ores come from operators that exercise strong environmental and human rights standards and which involve horrible ecological and human rights abuses. 

Tariffs often help domestic producers of materials like lumber and steel but hurt consumers of those same materials. They raise the costs of building houses and manufacturing automobiles, thus increasing the prices already strapped families must pay. Retaliatory tariffs on products that involve near-slave wages or other abuses or come from adversarial nations are more justifiable, but consumers still pay more. 

Greater international cooperation is a good third principle. While rhetoric in Brussels is cheap, over the past five years, the EU has engaged in more bullying than cooperation toward its own member states and partners outside the Union. In trade, unilateral and punitive Green Deal barriers have too often trumped dialogue and cooperation. 

This approach rarely worked. It enraged everyone, from European and American businesses to Asian small farmers. For instance, the EU should not reject Malaysia’s Sustainable Palm Oil standards (MSPO) just because of its EUDR. 

Other countries also have analogous standards for their major commodities, which should be considered for acceptance. There is no reason not to address sustainability and environmental progress as part of free trade, voluntary partnerships, or mutual recognition agreements rather than through tariffs, other trade barriers, or excessive regulations.

The new European Commission will certainly experience the unexpected during its five-year term. However, it should at least try to avoid self-inflicted injuries and prioritize economic growth over anti-competitive regulations. 

The incoming Trump Administration and Republican Congress will undoubtedly apply that approach. 

Paul Driessen is senior policy advisor for the Committee For A Constructive Tomorrow (www.CFACT.org) and author of Eco-Imperialism: Green Power, Black Death, and articles on energy, environmental, climate, and human rights issues.