POLICY BRIEF December 2025 MOVING BEYOND NEOLIBERALISM IN EU TRADE POLICY ABSTRACT European Union trade policy finds itself at a crossroads. After three decades of neoliberal dominance in the design of economic policy at large, and trade policy in particular, recent changes in the international system have led to a dramatic rupture of the liberal international order. Nostalgia for the good old days of hyper-globalisation and the liberal international order is, however, neither warranted nor helpful. Progressive policymakers are well-advised to adapt to a new reality, in which political-economic competition between the great powers is likely to increase and trade policy is used for promoting national security objectives, including by extracting concessions from other countries. Given such an environment and the EU’s pronounced external dependencies, EU trade policy will have to be realigned and made to serve an economic policy strategy that is no longer focused on supporting export-led growth but is based on the concept of defensive regionalism. Such an economic model wants to leverage domestic sources of growth, in particular by stepping up investment in the green and digital transformation, and combine this with extending the European social model, while using trade policy to promote the security of the supply of critical goods, increase the EU’s economic resilience and promote international cooperation. Six guiding principles, as proposed in this policy brief, aim to support such a new trade policy agenda. With respect to international economic governance issues, the EU should spearhead a discussion about a new and more balanced global trade order. By deepening the sustainable trade agenda in cooperation with trade partners and helping trade partners to implement their own green transformation processes, the EU could regain international recognition and help to promote a more cooperative post-neoliberal international system. AUTHORS WERNER RAZA Director, ÖFSE BERNHARD TRÖSTER Senior Researcher, ÖFSE IN PARTNERSHIP WITH

THE FOUNDATION FOR EUROPEAN PROGRESSIVE STUDIES(FEPS) European Political Foundation- Nº 4 BE 896.230.213 Avenue des Arts 46 1000 Brussels(Belgium) www.feps-europe.eu @FEPS_Europe FRIEDRICH-EBERT-STIFTUNG(FES) EUROPEAN UNION& GLOBAL DIALOGUE| BRUSSELS OFFICE Rue du Taciturne 38, 1000 Brussels(Belgium) www.brussels.fes.de @FES_Europa DAS PROGRESSIVE ZENTRUM(DPZ) Werftstraße 3, 10557 Berlin(Germany) www.progressives-zentrum.org AUSTRIAN FEDERAL CHAMBER OF LABOUR(AK EUROPA) Avenue de Cortenbergh 30, 1040 Brussels(Belgium) https://www.akeuropa.eu @AK_EU_Int This policy brief was produced with the financial support of the European Parliament. It does not represent the view of the European Parliament. Copyright 2025 by FEPS, FES, DPZ and AK EUROPA Front Page Photo(source): www.shutterstock.com/g/fotogri Copy Editing: Rosalyne Cowie Graphic Design: Agencia Downtown Legal deposit registration number: D/2025/15396./47 ISBN: 978-2-39076-099-3 2 Moving Beyond Neoliberalism in EU Trade Policy

TABLE OF CONTENTS 1. INTRODUCTION............................................................................................................................. 4 2. THE EU TRADE REGIME......................................................................................................... 5 2.1 Emergence and economic foundations............................................................... 5 2.2 Politisation and democratic contestation since the 2000s.................... 6 2.3 EU trade policy between securitisation and a stronger social and environmental mandate......................................................................................................... 11 3. THE EU ECONOMY IN A CHANGING GLOBAL ENVIRONMENT AND ITS IMPLICATIONS FOR EU TRADE POLICY...................................................... 12 4. GUIDING PRINCIPLES FOR A FUTURE EU TRADE POLICY............................ 17 5 CONCLUSION................................................................................................................................... 22 BIBLIOGRAPHY.................................................................................................................................. 23 Endnotes................................................................................................................................................ 27 About the authors............................................................................................................................ 28 About FEPS and partners.......................................................................................................... 29 Moving Beyond Neoliberalism in EU Trade Policy 3

1. INTRODUCTION European Union(EU) trade policy finds itself at a crossroads. After some three decades of neoliberal dominance in the design of economic policy at large, and trade policy in particular, recent changes in the international system have led to a dramatic rupture of the liberal international order. First and foremost, the USA has distanced itself from the very same system of global governance that it championed after the end of World War II. Secondly, the emergence of China as a global economic and political power has, together with other emerging powers(e.g., India, Brazil, South Africa, Indonesia), shifted the balance of power in the global system. The incumbent dominant powers, in particular the USA and EU, have found it difficult to accommodate the interests of new players within the framework of existing global governance institutions. As a consequence, the new players have resorted to forging alternative alliances(in particular the BRICS Group) and setting up alternative institutions, including the New Development Bank. This has been interpreted, in particular by the USA, as an attempt to weaken its hegemonic position and has thus led to a more confrontational trajectory, with particularly China becoming seen as a strategic rival to Western hegemony. The reaction of subsequent US administrations(since Trump I in 2016) has been to resort to more transactional and interventionist trade and foreign economic policies, which reached a provisional climax with the tariff war escalated under the Trump II administration starting in February 2025, not only against China and other countries seen as unfriendly to the USA, but also to close partners, including the EU. These developments come on top of a series of crisis situations – the COVID-19 pandemic in 2020/2021, the Russian aggression against Ukraine in March 2022, the Hamas attack on Israel on 7 October 2023 and the subsequent massive Israeli strikes against Gaza – the economic repercussions of which have not only weighed upon the macroeconomic outlook but have exposed a number of structural vulnerabilities of the European economy. These relate to import dependencies, with respect to critical supply chains, critical minerals and energy, and to the export side, where the current account surplus of the EU exposes it to the strong increase of discriminatory trade-related measures introduced by other countries, including the USA. 1 Moreover, global competition in sectors where the EU has been the technological leader, including the car industry, machines or chemicals, has increased recently, with peer competitors emerging particularly from China and other South-East Asia countries. The EU thus finds itself in the middle of a geopolitical conflict, for which it is ill-prepared, and which has painfully exposed its geopolitical weaknesses. Its traditional policy approach of promoting an open international trading system with a progressive tendency to open up markets and foster regulatory cooperation, if not alignment to European standards, seems increasingly outdated. The EU has reacted to recent shifts by half-heartedly updating its arsenal of trade defence instruments, but remains stuck in the middle ground between its traditional fixation on liberal trade and a turn to a trajectory based upon what has been called(open) strategic autonomy. While the von der Leyen II Commission has framed its trade policy approach, as guided by economic security and competitiveness, what this means precisely and how this could be achieved remain vague at the moment. It, however, points in a troubling direction, namely, to engage in competitive battles with global peers to gain market shares in a global economy marked by increased protectionism. Against this background, in this policy brief, an attempt is made to provide some suggestions as to which strategic orientation EU trade policy should adopt for the years to come. This is based on the assumption that the strategic outlook of trade policy needs to be aligned with the EU’s general economic policy approach. After providing a short overview of the emergence and recent developments of EU trade policy in Section 2, Section 3 discusses the position of the EU economy in the global political economy and how recent changes have impacted the external position of the EU economy. This serves as an important background informing the policy prescriptions presented in Section 4. Our main conclusion points to the need for the EU to 4 Moving Beyond Neoliberalism in EU Trade Policy

shift from a strategy of export-led growth based on neoliberal economic premises to one based on domestic investment and growth. A new framework dubbed“defensive regionalism” would mandate trade policy with attenuating external dependencies, promoting the green and digital transformation in cooperation with industrial policies, and to buildingup international partnerships based on honest engagement and mutual benefit. 2. THE EU TRADE REGIME 2.1 Emergence and economic foundations Trade features among the European Community’s oldest areas of competence. The 1957 Treaty of Rome already included the common commercial policy(CCP) as a core element in the economic dimension of European integration, along with the common agricultural policy, the internal market and competition policy. Two key attributes of the common European trade regime were established from the very beginning:(1) the complementarity of the internal and external liberalisation agendas in the context of the European integration process; and(2) the creation of collective market power via common trade policies. Both core elements have been deepened and intensified in the course of economic integration, but in particular, with the establishment of the World Trade Organization (WTO) in 1994 and the subsequent start of the WTO Doha round in 2001, the trade agenda has decisively gained in importance for the EU’s economic policy agenda. During the 1990s, the CCP came to be seen as an important vehicle for promoting the interests of EU businesses aiming to increase their international activities. The growth contribution to be derived from exports and international investment in the context of the strong expansion of world trade in the 1990s became a prime motivation for the EU to engage more actively in international trade diplomacy. With the Lisbon Agenda of 2000 establishing competitiveness as an overarching economic policy goal of the EU, trade was considered a critical component of this competitiveness and growth agenda. By opening international markets and doing away with trade barriers, EU trade policy was mandated to provide an environment that would stimulate EU businesses to increase their external competitiveness. Since the onset of the global financial crisis(GFC) in 2007/08, the external orientation of EU policymakers has, if anything, increased. With austerity imposed as the main pillar of EU policies during the eurozone crisis, the potential for growth via increases in domestic demand was severely curtailed. This left export promotion as the key channel. Thus, the shining example of Germany as the export champion of the EU – with a current account surplus showing a constant tendency to rise since the early 2000s, reaching a record surplus of€267 billion or 8% of gross domestic product(GDP) in 2016 – became the blueprint for successful economic policy throughout the EU(Eurostat data). Thus, the export-oriented model of the European core became, in reality, generalised with the financial and economic crisis and arguably superseded the debt-driven models of the EU periphery in place since the mid-1990s (Young 2016; Stockhammer and Köhler 2015). The ability of trade policy to become an instrument in the service of EU macroeconomic and growth policies was intimately linked to the change in the nature of the policy field since the start of the Uruguay round of general agreement on tariffs and trade(GATT) in 1986. This relates, firstly, to the substantive areas of trade policy and, secondly, to its geographical reach. The terms“trade” and“trade policy”, as they are used nowadays, bear little resemblance to the classical 19th century notion of free trade in goods. “Deep integration” as the prevailing leitmotif of neoliberal globalisation fundamentally changed the character of trade politics during the last four decades(Claar and Nölke 2012). Trade policy was no longer primarily an exercise in reciprocal tariff reductions(or“shallow integration”), as was the case during the post-war period of“embedded liberalism”(Ruggie 1982). Instead, it now dealt with a very comprehensive set of policy areas and should be understood as a project to expand the frontiers of trade into new domains – for instance, investment liberalisation, the protection of intellectual property rights, public procurement or the services sector, the last of which was traditionally considered as Moving Beyond Neoliberalism in EU Trade Policy 5

non-tradable(Nanda 2009). The trajectory of trade in services, as embodied in the general agreement on trade in services(GATS) and subsequent bilateral agreements, reached the very core of domestic politics. It, for instance, involved regulatory changes in sectors such as health, education, culture and social services, all of which were deeply entrenched in specific national histories(Raza 2016). Indeed, during the Doha Development Agenda negotiations, which started in 2001, the negotiations on GATS were used by the EU and other trading nations not only to expand market access into areas traditionally considered as public services(such as postal services, energy, transport or water), but also to promote regulatory alignment of these sectors, particularly by requesting trading partners to accept EU service sector regulations as the new regulatory standard(e.g., in telecommunications and postal services). The agenda that trade policy came to serve could thus much more aptly be described as a process promoting institutional homogenisation across borders, or to quote Stephen Gill, as the constitution of a specific form of market civilisation at the global level under the political leadership of “disciplinary neoliberalism”(Gill 2014). While the expansionary logic of EU trade policy had been present since the 1990s, the so-called “new-generation” deep and comprehensive free trade agreements(DCFTAs) deepened the already broadened substantive WTO agenda(“WTO-plus”) and applied it to the bilateral level, at least since the late 2000s. The comprehensive economic and trade area with Canada(CETA), signed in 2016, and the project of a transatlantic trade and investment partnership (TTIP) with the USA, abandoned in the meantime, were two of the most prominent examples of this. Essentially, both agreements aimed at radicalising the EU trade agenda by including two novel features. Firstly, they contained investment chapters that included investor-to-state dispute settlement(ISDS). These give investors the right to sue governments before international investment tribunals on alleged infringements of their property rights. Secondly, CETA and TTIP introduced chapters on“regulatory cooperation” with the objective of aligning diverging regulatory standards that presented impediments to trade in areas such as food security standards, pharmaceutical production standards, service sector regulations, risk assessments or licensing procedures. For critical observers from both academia and civil society, these new features posed risks with respect to transparency and democratic policy making(see, e.g., Myant and O’Brien 2015). Given the neoliberal tendency for deregulation, it was feared that, via regulatory cooperation, established public policy standards might become eroded and that vested corporate interests would effectively be given extended powers to block future regulation in the public interest. In summary, the neoliberal trajectory of EU economic integration since the late 1980s made the competitiveness agenda the dominant focus of EU economic policy, in both its internal and external policies. Given the politically supported international expansion of EU businesses, EU trade policy was mandated to push for opening foreign markets and to do away with trade barriers perceived by trade policymakers and EU businesses alike as being discriminatory or burdensome. In addition, the property rights of EU corporations were to be safeguarded by advancing high standards of property protection and regulatory alignment to EU standards. With potential for domestic growth foreclosed by severe austerity and structural adjustment policies after the GFC in 2008, the expansive orientation of EU trade policy became further radicalised with the shift to negotiating bilateral new-generation DCFTAs (see also Altvater and Mahnkopf 2007). 2.2 Politisation and democratic contestation since the 2000s Since its inception, EU trade policy was institutionally marked by the dual characteristics of a strong executive bias and a constant shift towards the supra-nationalisation of competences. This shift accelerated in the 1990s with the Treaties of Maastricht(1992) and the Treaty of Amsterdam (1997) gradually transferring ever more areas of trade policy to the European level. The Treaty of Lisbon(2009) consolidated trade policy making at the supranational level, granting the Union exclusive competence over tariffs, trade agreements and 6 Moving Beyond Neoliberalism in EU Trade Policy

trade defence instruments. This change enhanced the role of the European Commission(EC) as chief negotiator, while giving the Council and the European Parliament powers to approve trade agreements, thereby reinforcing the legitimacy and accountability of EU trade policy, while weakening the prerogatives of national parliaments in particular(Colantone 2022). Due to its allegedly technical nature, trade policy was traditionally considered a topic of minor public interest. Thus, throughout post-war history, trade policy was taken care of by specialised bureaucracy and very rarely made it into the forefront of public attention, at both national and EU levels. This only changed with the foundation of the WTO in 1994 and subsequent anti-globalisation protests at the WTO Ministerial Conferences in Seattle(1999) and Cancun(2003). At the EU level, protests against the GATS 2000 negotiations in 2002-2004 could be counted among the precedents of the more recent mobilisations against TTIP and CETA in 2015-2016. Within the ranks of the so-called anti-globalisation movement(or alter-globalisation movement), organisations such as those assembled in the Seattleto-Brussels Network started to systematically work on trade policy issues in the late 1990s and early 2000s. 2 Though becoming rather professional in their advocacy work, it nevertheless turned out to be quite difficult to institutionalise trade as a prominent issue in wider civil society and for the general public. At the EU level, only with the anti-TTIP and CETA protests in 2015-2016 and, most recently, in the context of the negotiations on an association agreement between the EU and the Mercosur countries during 2019-2020, did trade policy come to the attention of the media and under public scrutiny. Acronyms once understood only by a small circle of experts have inscribed themselves into the popular conscience. And, if one is to judge from the bulk of press commentary and popular musings on social media, it appears that these strategic projects of EU trade policy are deeply unpopular. Indeed, they had become“emblematic representations”(see Hajer 2005) of a seemingly profound discontent among the wider public not only with the alleged merits of globalisation, which economic and political elites in the EU had enthusiastically promoted for decades, but with neoliberal economic policies at large. Additionally, both the COVID-19 pandemic and increasing geopolitical rivalry between the USA and China have recently highlighted that global value chains are vulnerable, and global economic interdependence could become“weaponised” to serve political ends(Farrell and Newman 2019). Alas, it emerged that economic“hyper-globalisation” (Rodrik 2011) had come at a cost for many ordinary citizens. This found its most visible expression in the drastic increase in wage and functional inequality in industrialised societies, the re-emergence of widespread poverty, and the loss of a positive career and life perspective for ever-larger segments of the so-called middle class(see, e.g., Milanović 2018, Piketty 2022 and Raza 2018). The scepticism and open protests against recent trade agreements took the EU political establishment by surprise. The longstanding consensus amongst policymakers at the EU and national levels, minus some dissenting voices in academia as well as at the right and left fringes of the political spectrum, considered free trade agreements(FTAs) to increase economic welfare, and thus, be in the interest of enlightened governments and citizens. It was taken for granted that any negative effects on particular social groups were of a short-term nature and could be easily remedied by modern welfare states and their redistributive mechanisms. However, what was largely ignored in established policy circles was that the nature of what trade and trade policy constitutes had substantially changed, with the economic case for new-generation trade agreements not being so clear-cut anymore(see, e.g., Krugman 2014 and Rodrik 2018), while neoliberal economic policies also weakened the effectiveness of welfare systems to cope with social adjustment costs. Though advocacy and campaigning work proved successful for raising public awareness and resistance, which arguably helped to derail specific negotiations such as TTIP, civil society organisations faced an uphill battle in confronting institutional EU trade politics. The institutional setup of EU trade policy had been characterised by a strong bias towards the executive, with the EC and – to a lesser extent – member state governments in charge of Moving Beyond Neoliberalism in EU Trade Policy 7

EU trade policy. Also, the broader discursive order of EU trade policy was traditionally dominated by a powerful epistemic community, including academia, think-tanks and the liberal media, all of which held strong free trade credentials. In institutional terms, the possibilities for participating in policy discussions at the EU level were circumscribed. The“civil society dialogue” established by the EC in 1998, was the only formal consultative forum, though it turned out to be no more than a platform for the exchange of(mostly known) information and political positions. Box: Assessing economic, social and environmental effects of EU trade policy results from the literature Though increased international trade might generate aggregate benefits for economies, gains and losses are unevenly distributed between countries and among the actors within an economy. While benefits are often dispersed across broad groups of consumers, costs are concentrated among specific workers, industries or regions. As a result, those actors adversely affected by import competition or structural adjustment tend to experience losses that are deeper and more tangible than the diffuse, incremental gains enjoyed by the broader population(Dorn and Levell 2024). This asymmetry not only shapes the socio-economic outcomes of trade, but also fuels political opposition to liberalisation, as the intensity of individual losses provides a stronger incentive to mobilise against further openness. Studies on the aggregated trade and welfare(GDP) effects of the EU’s external trade policies are rather scarce. The total trade effects of the EU’s external trade policies for EU member states are generally positive but smaller than the effects of intra-EU integration. A recent metastudy reported that, for instance, GATT/WTO membership promoted external trade by up to 50% between member states(Campos et al. 2025). For the EU, a study by Kommerskollegium(2019) shows an external trade effect of+65% for the EU-28 through GATT/WTO membership. 3 However, the resulting effects of GATT/WTO membership on real manufacturing GDP in the EU are mixed, with countries such as the Netherlands(+5.01%), Hungary(+5.08%), Germany(+3.48%) and Austria(+2.88%) seeing positive effects, while France(+0.59%), Italy(−0.76%), Denmark(−1.25%) and Sweden(−1.47%) experience moderate or even negative GDP effects in the manufacturing sectors. For most EU FTAs, trade effects among the partner countries are somewhat smaller. While the Kommerskollegium(2019) study reports average trade effects for EU agreements of+48%, these are driven primarily by the EU-European Free Trade Association agreements and customs unions with neighbouring countries, such as Turkey or Norway. The trade results of ex-post evaluations of individual EU FTAs are mixed, depending on the starting year and the level of liberalisation (as shown by Bergstrand et al. 2010). There are also differences between import and export dynamics. Soete and Van Hove(2017) find that FTAs increase import competition in the EU, but export effects vary among individual EU member states, and in general enhance the extensive margin, that is, increase exports of different products. 8 Moving Beyond Neoliberalism in EU Trade Policy

The major potential channel for widespread positive effects of trade liberalisation are benefits for consumers primarily through lower prices for imports, greater product variety and improved quality. This increases real purchasing power of households. Berlingieri et al.(2018) found that EU trade agreements boosted the quality of imports(i.e., better products for the same or lower price) by about 7% between 1993 and 2013, but had no overall effect on prices and variety. Nevertheless, this led to a 0.24% reduction in the consumer price index, which translated to annual savings of around€24 billion for EU consumers, with high-income EU member states benefitting more than low-income member states. According to the EC, EU consumer gains of around€600 per year have been estimated due to trade agreements lowering prices and expanding choices(Salm and André 2017). Similarly, Cernat et al.(2018) estimated total tariff savings for EU households from trade liberalisation at approximately€60 billion per year. Consumer price effects are, however, a result of production shifts: some goods are produced for export while others are imported instead of being made domestically. Thus, external trade liberalisation affects sectors differently, implying that workers and wages in the EU have experienced significant and heterogeneous effects depending on industry, skill level and geographical location. Academic research focuses particularly on the effects of the rapid emergence of China as a global exporter since 1990(“China shock”) on(local) labour markets and inequality in the EU. Similar to impacts in the USA(Autor et al. 2013), increased import competition in manufacturing sectors resulted in job losses and reduced earnings for workers in more trade-exposed industries and regions in the EU. Dauth et al.(2014) documented that import competition from China, but also from Eastern Europe, had a negative effect on manufacturing employment across German local labour markets. Similar results are shown for other European countries, for example, by Foliano and Riley(2017) for the UK, Malgouyres(2017) for France and Aghelmaleki et al. 2022 for 14 EU member states. The adverse impacts affect primarily lower-skilled workers(Terzidis 2025). On the export side, opportunities through trade openness have create positive effects for employment for specific sectors. In Germany, positive effects from export-oriented manufacturing could offset the negative impact of import competition overall(Dauth et al. 2014). However, the benefits accrue largely to high-skilled workers(Dauth et al. 2021) and export sectors are typically more exposed to economic shocks. The diverging effects on the sectoral and skill levels increased inequalities. Firstly, studies find job polarisation, with the strongest employment losses occurring in the mid-skill manufacturing occupations pushed into lower-wage service jobs(Keller and Utar 2023, Malgouyres 2017). Secondly, globalisation is a contributing factor to rising wage inequalities in the EU(Jestl et al. 2018, Zwysen 2023). Thirdly, the effects of globalisation on income distribution between capital and labour are insignificant at the national level(Dorn and Levell 2021) and mixed at the sector level, depending on participation in global value chains(Riccio et al. 2025). Moving Beyond Neoliberalism in EU Trade Policy 9

EU trade obviously has environmental impacts. Given large-scale outsourcing of emissionintensive production from the EU during the last four decades, imports of goods to the EU increased total consumption-based EU CO2 emissions by 20% in 2021, making the EU the largest importer of CO2 emissions globally(Fritz 2023). According to projections of the European Environmental Agency, EU trade-related emissions generated by international air and maritime transport are expected to rise until 2040, with aviation emissions roughly doubling compared to 2020(European Environment Agency 2025). Related to its net imports of emission-intensive products, EU trade actively contributes to deforestation and biodiversity loss globally. According to estimates, in 2017, the EU was responsible for 16% of deforestation associated with international trade, totalling 203,000 hectares(Wedeux and Schulmeister-Oldenhove 2021). Trade not only has direct economic, social and environmental impacts, but also has broader social and political consequences, such as the decline in the provision of public goods and adverse health outcomes(see Dorn and Levell 2021 for more details). Importantly, globalisation effects are linked to rising support for extreme political parties, particularly on the far right(Autor et al. 2020, Colantone 2022, Scheiring et al. 2024). In Germany, for example, Dippel et al.(2022) showed that import competition contributed to growing support for the right-wing AfD after 2013, with low-skilled manufacturing workers proving most responsive. A similar relationship between import competition and electoral results has been found for Italy(Caselli et al. 2020). EU trade policy also creates both winners and losers in non-EU countries. Generally, it tends to favour partners with the capacity to comply with EU requirements and supply goods of strategic importance, while disadvantaging those lacking the institutional or technological capacity to adjust. Therefore, many agricultural exporters often struggle with high EU sanitary and phytosanitary standards, affecting not only low-income countries, but also EU neighbouring countries in Northern African and South-Eastern Europe(Tröster et al. 2023). In contrast, labour-intensive manufacturing sectors in South-East Asia were able to benefit from export opportunities and FTAs with the EU, but often at the expense of social and environmental standards(Grumiller et al. 2018). In terms of evaluating trade agreements, the central instrument applied since 1999 for assessing the economic, social and environmental impacts of trade liberalisation consisted of trade sustainability impact assessment(TSIA) studies. 4 TSIAs are commissioned by DG Trade and typically carried out by a set of specialised research institutes and consultancy firms that form an important nodal point in a wider“epistemic community”(Haas 1992) of trade policy experts in both academia and policy circles. The methodological core of TSIAs is based on so-called“computable general equilibrium (CGE)” models that emphasise the benefits of trade liberalisation. Though the methodology of this modelling approach has been widely criticised for its methodological and theoretical biases(see, e.g., Ackerman and Nadal 2012, George 2010, Raza et al. 2014), CGE models have become the standard tool for the ex-ante assessment of the economic impacts of trade liberalisation, at both the EU and global levels. Nevertheless, the view that trade liberalisation produces economic gains and is therefore recommendable had been unwaveringly defended by the mainstream CGE modelling 10 Moving Beyond Neoliberalism in EU Trade Policy

community, and thus, largely coincided with the institutional views of the EC. Apart from the TSIAs, other studies commissioned by, for instance, the European Parliament, national governments, thinktanks or corporate interest groups, also heavily relied on CGE modelling exercises, and thus, tended to reinforce the claims made by the former. Thus, the epistemic ground upon which the EU trade policy debates took place has been heavily biased against those social voices that were critical of trade liberalisation. Trade campaigners from civil society and progressive social movements more generally were confronted with an arsenal of studies representing the consensus view of a wellestablished and powerful epistemic community. Although, as a consequence of strong mobilisations around TTIP, CETA and other agreements, institutional discussion spaces – particularly in the European Parliament and national parliaments – were created, where trade officials at some point had no choice but to participate and respond to criticisms and demands from non-governmental organisations, typically these debates were an uphill struggle. The case for trade liberalisation, as expounded by CGE-based modelling studies, has often been at the heart of these debates, and particularly difficult to refute, as the latter command the status of rigorous and evidence-based science and require advanced technical knowledge of economic methodology. Civil society organisations, nevertheless, developed an alternative view on trade that centred on issues such as democratic control and transparency, binding human rights obligations, sustainable development and food sovereignty, and an end to ISDS mechanisms(Dupré and Leré 2019, Alternative Trade Mandate 2013). Though civil society organisations could not fundamentally alter the pro-liberalisation tendencies of EU trade policy, the debates initialised by the resistance against TTIP and CETA pressured EU policymakers to strengthen the social and environmental dimensions of EU trade policy. This was reinforced by the large climate protests in 2018 and 2019, which led to the European Green Deal initiative of the first von der Leyen Commission in 2020. To be both effective and credible, this largescale economic transformation program necessarily had to be flanked by external policy measures safeguarding certain social and environmental standards, in particular to guarantee that the EU climate goals under the Paris Accord would not be jeopardised. 2.3 EU trade policy between securitisation and a stronger social and environmental mandate EU trade policy since 2020 has thus been marked by two tendencies:(1) a set of initiatives to promote social and environmental standards, as a consequence of civil society pressure during previous years, but strongly contested by the EU corporate sector; and(2) a shift toward promoting economic security and strategic autonomy as a consequence of the COVID-19 pandemic, the war in Ukraine and ensuing geopolitical shifts. On the social front, the Regulation on Forced Labour (Regulation(EU) 2024/3015, in force since December 2024) prohibits the placement of products made with forced labour on the EU market. After a controversial (and in effect ongoing political debate), the EU also introduced the Corporate Sustainability Due Diligence Directive(CSDDD; Directive(EU) 2024/1760) in July 2024. The directive requires large companies(above a certain threshold) to identify, prevent and mitigate adverse human rights and environmental impacts in their own operations and throughout their global value chains. On the environmental front, two developments were of significant importance. Firstly, the EU Deforestation Regulation(EUDR; Regulation(EU) 2023/1115) requires companies to prove products like beef, cocoa, coffee, palm oil, soy, rubber and wood sold in the EU were produced on land not deforested or degraded after December 2020 and are compliant with local laws. The Carbon Border Adjustment Mechanism(Regulation(EU) 2023/956, adopted in May 2023) is designed to prevent“carbon leakage” by imposing a carbon price on imported goods, ensuring a level playing field with EU products subject to the EU Emissions Trading System. This regulation applies to carbonintensive goods like iron, steel, aluminium, cement, Moving Beyond Neoliberalism in EU Trade Policy 11

fertilisers, hydrogen and electricity. Implementation of these instruments is, however, largely pending, as they are heavily contested by the EU corporate sector and partially also by trading partners. The second tendency of promoting economic security has been greatly propelled by a series of events that started with the COVID-19 pandemic, followed by the energy crisis triggered by the war in Ukraine, the repercussions of the increasing rivalry between the USA and China, and the broader ramifications of the changed international environment for the green and digital transformation of the European economy. While both the pandemic and the Ukraine war led to a number of measures to increase the resilience of critical supply chains, in particular via policies to promote diversification of sources of supply, the rivalry with China(and with respect to steel and aluminium, also with the USA) triggered a number of responses aimed at increasing the EU’s capacity for trade defence and investment protection, including the introduction of the Anti-Coercion Instrument in December 2023 (EU Regulation 2023/2675), as well as foreign direct investment screening(Regulation 2019/452, with a number of revisions to strengthen it proposed by the EC in 2024). Increased awareness with respect to strategic dependencies of the EU, including critical minerals, energy, and green and digital technologies, led to a broader reconfiguration of EU trade policy recently, with the latter increasingly put into the service of economic security goals. This process of“securitisation”(Buzan et al. 2013) has not been confined to EU trade policy but extended to virtually all economic policy dossiers, and it has increasingly dominated the EU political agenda at large. As a consequence, the social and environmental agenda of EU trade policy has become deprioritised. With the Omnibus legislation approach of the Commission, there is indeed the threat of a severe political backlash, in particular in relation to the CSDDD and the EUDR. 3. THE EU ECONOMY IN A CHANGING GLOBAL ENVIRONMENT AND ITS IMPLICATIONS FOR EU TRADE POLICY For a proper understanding of the purpose and role of EU trade policy against the background of recent geopolitical shifts, it is necessary to situate trade policy in the wider EU economic policy environment. Only on this basis can a nuanced understanding of necessities for the reform of EU trade policy emerge. The prevailing macroeconomic regime of the EU, including its current problems, such as low growth and productivity dynamics(see, e.g., Draghi 2024), has its roots in the economic policy setup of the EU, as enshrined since the early 1990s in the EU’s legal framework through a series of reforms. Very broadly, the setup consists of two major policy paradigms. With respect to the real economy, the focus has been on creating and deepening the single market via a process of predominantly negative integration. The essential elements thereof included the liberalisation of economic sectors; the dismantlement and privatisation of public companies, including restrictions on state aid and government procurement; the partial deregulation of the labour market; a sector and product market regulatory approach favouring mutual recognition over harmonisation; and a horizontal approach for promoting research and innovation. With respect to the financial economy, a restrictive approach has been adopted for both fiscal and monetary policy, as enshrined in the Stability and Growth Pact(SGP) and the European Central Bank(ECB) mandate. The internationalisation of the banking sector, though for regulatory matters remaining under the joint remit of both the EU and member states, was by and large supported. Protective elements of the economic policy setup were mostly maintained for agriculture, while territorial cohesion was addressed through regional and cohesion policies. While arguably the creation of the single market, with its focus on promoting intra-EU trade, had a growth-enhancing effect during the 1990s and early 2000s, and the institutional setup showed some capacity to accommodate different national growth models within the EU during the first decade after the 12 Moving Beyond Neoliberalism in EU Trade Policy

millennium, the restrictive bias of fiscal and monetary policies eventually turned out to be a liability, once the EU was hit by a major economic crisis, namely, the GFC of 2007-2008(Johnston and Matthijs 2022). For one, the heavy austerity imposed upon the EU periphery in the aftermath of the GFC severely curtailed domestic consumption and investment, thus leaving export demand as the only avenue to propel economic growth. Thus, starting in around 2010, under pressure from the neo-mercantilist core of the EU led by Germany, the entire eurozone, like it or not, shifted to an export-led growth model. Together with another set of fiscal governance reforms(the Six Pack and Two Pack), which also included a new excessive imbalances procedure heavily constraining domestic consumption and investment, the draconian spending cuts imposed by the Troika on the countries of the EU’s southern periphery, in particular Portugal, Italy, Greece and Spain, in combination with high-risk premia on public debt demanded by financial markets were not only successful at severely curtailing fiscal space and precluding any fiscal stimulus programs in the crisis countries but in the eurozone more generally. Although under the leadership of Mario Draghi the ECB resorted to an extremely expansive monetary policy stance, with ultra-low interest rates and unprecedented quantitative easing, that is, bond purchase programs, monetary policy alone was not able to reinstate economic dynamism. As a result of these policies, the macroeconomic performance of the EU economy deteriorated significantly. Growth during the 2010s remained weak, falling to an average of 1.6% per year during 2010-2019(cf. an average 2.3% per year during 1999-2008). Total real investment in the EU fell from a pre-GFC high of 23.6% in 2007 to 19.9% in 2014, and recovered to some 22% of GDP only at the end of the decade (Eurostat data). Figure 1. Net extra-EU export of goods and services, 1995-2024. % of EU GDP 5,00 4,50 4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50 199 1 5 99 1 7 99 2 9 00 2 1 00 2 3 00 2 5 00 2 7 00 2 9 01 2 1 01 2 3 01 2 5 01 2 7 01 2 9 02 2 1 023 European Union Linear(European Union) Source: Author’s elaboration, based upon data from the AMECO database. Moving Beyond Neoliberalism in EU Trade Policy 13

The little growth happening in the EU was thus mostly premised on external demand. The EU’s trade surplus in goods and services increased from some 1.5% pre-GFC to more than 4% in the mid-2010s, and remained at some 3.5% until 2020(see Figure 1). In other words, the EU relied on the rest of the world to buy its goods and services, with exports to China increasing at a particularly strong pace, while the importance of the USA as an outlet for European products declined somewhat(Guarascio et al. 2024). As long as growth in emerging markets remained strong and the USA pursued a consumption- and debt-led growth trajectory, this strategy seemed sustainable. The external dependence it created for the EU’s growth model could, however, backfire once other countries reverted to more protectionist policy stances or an exogenous shock hit the global economy. The first shock came with the outbreak of the COVID-19 pandemic in early 2020. The immediate consequence was the breakdown of many global supply chains, including of critical medical supplies, and the halting of large segments of economic activity due to the enacted lockdowns. After a short moment of paralysis, the EU, in combination with member states, reacted with a coordinated effort to contain the crisis and support the flailing economy. Emergency policies included both fiscal measures to the tune of€1.3 trillion(SURE program, ESM pandemic crisis support, NextGenerationEU(NGEU)), and monetary measures(including the PEPP program worth more than€1 trillion). Additionally, the fiscal rules of the SGP and restrictions on state aid were temporarily suspended. Under the NGEU program, EU member states, including notoriously sceptical Germany, agreed, for the first time, to issue common European debt. As a consequence of the pandemic, the policy stance started to shift towards promoting the resilience of(critical) supply chains and to foster the“open strategic autonomy” of the EU economy with respect to critical goods, technologies and infrastructure. The second shock erupted upon the EU political scene with the Russian aggression against Ukraine in February 2022. The ensuing energy crisis resulted in massive price hikes, particularly of natural gas, and led the EU to diversify energy supplies. As a consequence, headline inflation surged to some 9% in 2022, sank to some 6% in 2023 and remained above the ECB’s target rate of 2% for most of 2024. Only in November 2024, at 2.1%, did inflation fall in line again. Fiscal policy reacted to the Ukraine crisis with expansive measures, on one hand, to stabilise the economic and social effects of the price surge, and on the other, to increase defence spending. In raising interest rates rather quickly, with a peak rate of 4.5% reached in December 2023, the monetary policy response of the ECB to inflation was conventional. The motivation had to do with the desire to foreclose the possibility of a wage-price spiral. That however amounted to a misdiagnosis, as the ensuing wage increases in effect followed prices, and in general remained moderate. With real wages falling, households across the EU actually suffered an unprecedented cost of living crisis that caused considerable social distress and political unrest(EuroMemo Group 2023, 2024). Additionally, by fighting inflation via making investment and consumption more expensive, the ECB deliberately accepted a dampening effect on EU economic activity. EU GDP growth fell from 3.57% in 2022 to 0.5% in 2023, with a moderate increase to 1.0% in 2024(European Commission). As inflation was the consequence of an external shock hitting the EU economy, it could have been fought more effectively by introducing systematic price controls into the strategic sectors of energy and food and with windfall profits(of energy companies in particular) being taxed by governments and used for compensatory policies(Van’t Klooster and Weber 2024). Thus, the overall results of the crisis response measures consisted of a permanently higher price level and a slowdown of economic activity, both of which have had a negative effect on the cost structure, and thus, the competitiveness of companies, as well as on the welfare of private households(EuroMemo Group 2025). The year 2024 witnessed the unfolding of a paradoxical situation. The external outlook deteriorated significantly with the rivalry between the USA and China on the rise, the EU economy suffering from increased Chinese competition, and an overall subdued global economic outlook. 14 Moving Beyond Neoliberalism in EU Trade Policy

Above all else, the return of Donald Trump to the US presidency developed from a looming threat to becoming a certainty in early November. Internally, the political fallout of the pandemic and the energy shock reverberated throughout Europe by way of strengthening extreme right-wing parties and earning them electoral successes in Portugal, France and Austria, as well as at the European elections in June 2024. In defiance of these developments, economic policy making in the EU was keen to return to normal. The ECB continued to phase-out quantitative easing programs and started to moderately lower key interest rates by 1.35 percentage points during the second half of 2024(from 4.5% in June to 3.15% in December). The reform of the SGP agreed upon in April 2024 included only minor modifications, while the core principles were retained. With the application of the new rules to kick-in with the fiscal year 2025, many EU countries are expected to suffer a new phase of fiscal austerity(De Grauwe 2025). The tariff war unleashed by the Trump administration in early 2025 marked the moment when push came to shove for the EU. With EU exports repeatedly threatened with high US tariffs since March, protracted negotiations led to a precarious settlement in July 2025. The deal introduced a 15% US tariff on most EU exports, while the EU pledged to completely eliminate tariffs on US industrial goods and to enhance market access for US agricultural and food products. The deal also includes large, and rather implausible, commitments from the EU to purchase American energy(up to$750 billion) and invest an additional$600 billion into the US economy. In both substantive and symbolical terms, the deal was considered a major humiliation for the EU by a majority of EU citizens and policymakers. 5 Arguably, EU submission is to be explained by geopolitical factors, in particular the EU’s security dependence on the USA in general, and continued US military support to Ukraine in particular. That this“weaponisation” of trade(Farrell and Newman 2019) for political ends was launched by its principal ally marked a watershed moment for the EU. It has become obvious that in a situation marked by the erosion of the rules-based liberal international order, the prized economic power of the EU with its large single market is far lower than assumed. Indeed, an economy such as the EU, characterised by both a current account surplus and substantial import dependencies with respect to critical raw materials, energy, and green and digital technologies, is especially vulnerable. In a world governed by power politics between large nations, it is ultimately political and military power that determines economic power and not the other way round. The enduring political fragmentation of the EU has thus been exposed as a major weakness under the emerging new geopolitical constellation. European policymakers reacted to the changing international environment with a doubling down on the competitiveness agenda. Based on a somewhat selective reading of the Letta and Draghi reports, which posited an innovation deficit of the European economy with respect to the US economy, particularly with respect to high-tech sectors, the second von der Leyen Commission introduced a new agenda based on promoting competitiveness and economic security. The essence of the new strategy consists of sticking to a supply-side approach with essentially two elements. Firstly, the Commission wants to establish a full Savings and Investment Union, through which private investment should be mobilised, particularly into high-tech sectors. Secondly, through a new wave of deregulation, the administrative burden on the corporate sector should be reduced, thus freeing resources for investment and innovation. Though presented to the public as regulatory simplification, leaving substantive regulatory objectives intact, the recently introduced wave of Omnibus proposals targets, in particular, the environmental acquis introduced by the previous Commission since 2019, including the EU CSDDD, the EUDR and the Directive on Corporate Sustainability Reporting. With the introduction of a partial exception for security spending, while otherwise leaving the restrictive fiscal framework of the reformed SGP intact, the major demand-side stimulus is to be achieved by investment into rearmament. The ReArm Europe Plan/Readiness 2030, presented in March 2025, proposed to leverage over€800 billion in defence spending through national fiscal flexibility, a new €150 billion loan instrument(SAFE) for joint procurement, potential redirection of cohesion funds Moving Beyond Neoliberalism in EU Trade Policy 15

and expanded European Investment Bank support. Commitments to increase defence spending to 5% of GDP agreed upon by NATO members in June 2025 are already exerting pressure on national budgets to reallocate resources away from, by and large, social purposes. With a fiscal multiplier typically estimated at below one, the short-term economic stimulus expected from military spending will however remain subdued. To the extent that spending on the green transformation and social infrastructure with multipliers of two or above are crowded out, overall macroeconomic effects of military spending might even turn negative(Krebs and Kaczmarczyk 2025). Additionally, a significant part of military funds will be used to buy weapons and military equipment abroad, in particular from the USA, thus representing a drain of resources from the EU. While details will only be spelled out with the new EU Economic Security Doctrine expected for late 2025, the economic security element of the new EU strategy tasks EU trade policy with securing access to critical minerals and energy, while ramping up trade defence instruments to protect vulnerable sectors(such as steel and cars), and preventing the export or takeover of strategic technologies and companies. The negotiation of new bilateral trade agreements, the acceleration of ongoing negotiations and the adoption of finalised agreements, for example with the Mercosur countries, is presented as a necessary means to safeguard EU economic security interests. By way of summary, as 2025 is approaching its end, the EU’s export-led growth model is threatened on multiple fronts. Firstly, the growth contribution from exports and international economic activity will significantly decline in the years to come. Diversification of export markets is certainly welcome but will not fundamentally solve the problem. Trade diversion as a result of the conflict between the USA and China propels all major trading blocs to move towards a more protectionist stance, including through measures to restrict imports. Secondly, EU import dependencies with respect to critical minerals, energy, and green and digital technologies are likely to become exacerbated. Supply disruptions for critical minerals, energy or key high-tech components(semiconductors, batteries, etc.) due to geopolitical conflicts are expected to increase, which will lead to, on average, higher import price levels and greater cyclicality of prices. The latter will, in turn, weigh on the competitive position of EU companies. If, as a consequence of these developments, EU policymakers react with efforts to increase the relative competitiveness of their respective economies to gain market shares in stagnating global markets, international economic exchange will become characterised by beggar-thyneighbour policies and a race to the bottom. Wages and the welfare state, as well as the commitment to address global public goods such as climate change will all suffer as a result, particularly if accompanied by military rearmament and escalating tensions. On the political front, such a policy stance will in all likelihood reinforce the authoritarian turn underway both globally and in the EU. In a situation where the authoritarian far right has already consolidated its power throughout Europe, is already in government in a number of EU countries(Hungary, Italy, Netherlands, Finland), and the traditional political centre(Christian democrats, social democrats, liberals) has been eroding for the last 25 years in the two core countries of France and Germany, ascendancy of the authoritarian far right to power at the EU’s core seems only a matter of time. Should this happen, the European project as such would be at stake and a return to competing nationalisms in Europe could not be ruled out. Exhaustion of the EU’s export-led growth model could, however, also be understood as an opportunity. A shift of the economic model towards one led to a higher degree by domestic investment and consumption could be leveraged to double down on the green and digital transformation, while also promoting a common European social agenda. Instead of pursuing zero-sum competitiveness races, external relations would be refocused on economic and political cooperation for the mutual benefit of all parties. What such a new agenda of “defensive regionalism” would mean for EU trade policy is taken up in the next section. 16 Moving Beyond Neoliberalism in EU Trade Policy

4. GUIDING PRINCIPLES FOR A FUTURE EU TRADE POLICY Though emanating from discussions around the “new regionalism” of the 1980s and 1990s(Hettne et al. 1999), the concept of“defensive regionalism”, as applied here, is primarily motivated by the quest to conceptualise an economic model for the EU that is less dependent on the global economy for its economic wellbeing, in terms of both export growth and the provision of raw materials and energy, while simultaneously opening up opportunities for peaceful coexistence and mutually beneficial international cooperation for promoting global public goods, including environmental security, tax cooperation, or the prevention of pandemics and communicable diseases. Such a benevolent form of regionalism, or “benign mercantilism” as Robert Gilpin(1975) put it, must be contrasted with malevolent mercantilism, where regionalisation is accompanied by political conflict and confrontation, particularly as countries and regions compete for access to markets, natural resources or technological supremacy. The question thus is not whether the global economy will eventually regionalise, but rather what political responses the process of regionalisation will produce. In contrast to worrying signs that European policymakers want to make Europe more“assertive” in global affairs and turn it into a hard power, including through massive rearmament, Jürgen Habermas and Jacques Derrida insisted in 2003 that Europe’s second chance to influence world history, differently from previous imperialist and colonial ventures, must come through a“non-imperial process of reaching understanding with, and learning from, other cultures”(Habermas and Derrida 2003). Even though Europe has often been praised for its soft power approach, this does not mean that it was only based on diplomacy and cooperation. Instead of Figure 2. Guiding principles for an EU trade policy. New Multilateralism Democratic Accountability Conditional Protectionism Win-Win Cooperation Sustainable Trade Agenda Diversification & Import Substitution Source: Author’s elaboration. Moving Beyond Neoliberalism in EU Trade Policy 17

succumbing to self-defeating nostalgia, it did involve what Fredrik Söderbaum and Björn Hettne described as both civilian power and soft imperialism, the latter being based upon various forms of mostly economic coercion, as in the case of the EU’s relationship with the African, Caribbean and Pacific countries(Hettne and Söderbaum 2005, Hurt 2003). As the world moves into a period marked by multiple crises and geopolitical competition, the EU has a legitimate right to secure the economic wellbeing of its citizens, to promote social justice and environmental sustainability. This must, however, not come at the expense of safeguarding the common good globally and of cooperating on existential planetary problems, including climate change. Using economic policy in general, and trade policy in particular, to safeguard these vital domestic interests, including through a more interventionist and protectionist approach, seems legitimate, providing such policy is substantively justified and proportional in its application and does not unnecessarily impinge upon the legitimate interests of other countries. The latter is of particular importance in keeping to the defensive character of such regionalism. To avoid the kind of improvised transactionalism characteristic of the current US administration, such an approach would need to be guided by certain foundational principles. In our view, these are(1) democratic accountability;(2) conditional protectionism;(3) diversification and import substitution;(4) a sustainable trade agenda; (5) win-win international cooperation; and(6) a new approach to multilateralism(see Figure 2). 4.1 Enlarge democratic accountability at home Though ironically civil society has traditionally been criticised for“politicising” trade policy, this is precisely what EU policymakers have done themselves more recently, by using trade policy explicitly to service security objectives. With stakes as high as they are under current circumstances, the demand for trade policy to be based upon inclusive democratic deliberation has never been more warranted. Instead, the debate has become more exclusionary and circumscribed, with the EC and(some) governments foreclosing participatory debate with reference to the overarching and selfevident importance of economic security and competitiveness. A case in point is the recent debate on the EU-Mercosur Association Agreement, the adoption of which is presented as indispensable from an economic security point of view, notwithstanding its well-documented environmental effects. Concern for the latter is portrayed as a luxury issue Europe can no longer afford. This goes hand in hand with a disregard for the trade-offs associated with the respective policy choices. Alas, it is not selfevident why security interests must be prioritised at the expense of environmental sustainability or social cohesion and how the implicit trade-offs between the two goals might be addressed. If, for instance, the EU restricts exports of advanced digital technologies to China, thus risking being cut off from supplies of critical minerals and technologies vital for the green transition, or of critical pharmaceutical substances needed for public health in the EU, such a choice involves difficult trade-offs, which should be carefully deliberated and where input legitimacy is critical for social acceptance. The bias towards the executive power apparent in the recent conduct of EU trade policy, with consultations essentially focused on the corporate sector, is thus cause for concern. If anything, trade policy has become more complex, having to meet multiple and partially antagonistic goals, including efficiency, growth, (full) employment and social cohesion, price stability, environmental sustainability, and now also economic security. To think that the prevailing technocratic approach to policy making will deliver optimal solutions is a dangerous chimera. If security, and thus questions of, ultimately, life and death, come into play, EU trade policy needs to be put on a broad democratic basis. This calls for the opening up of institutional spaces for democratic consultation and deliberation, particularly on issues of strategic importance. Specific measures to be contemplated include(1) a stronger role for the European Parliament and regular consultations between EU institutions and national parliaments; (2) institutionalised consultations between EU institutions, in particular the EC, and trade unions, as well as civil society, before new negotiations begin 18 Moving Beyond Neoliberalism in EU Trade Policy

and during negotiations; and(3) the employment of experimental forms of deliberative democracy, such as citizens’ councils. 4.2 Couple trade protection with conditionalities In an international environment with pronounced trade imbalances and a tendency to subject economic policy to geopolitical ends, domestic industries might be negatively affected by foreign policy actions, which, for instance, lead to the production and subsequent export of domestic overcapacities (e.g., steel and automobiles), or restrict exports to foreign markets thanks to security-related import restrictions. Under such conditions, the protection of domestic economic sectors might be necessary, at least on a temporary basis. Except for strictly limited temporary measures, the protection of a particular industry should be tied to conditionalities, the aim of which is to avoid corporate rent-seeking. As a matter of fact, many of the industries that are in danger of being affected by foreign policy measures, such as the steel industry, the car industry, and the green and digital sectors, are themselves in need of a profound transformation of their business models. Thus, if the EU and/or national governments provide support to those industries via trade policy (e.g., tariffs and safeguards) and other measures (subsidies, tax reductions etc.), such support should be tied to reaching certain performance targets by the respective companies. For instance, steelmakers should be obliged to step up efforts to produce green steel, by way of converting steel production into renewable energy resources (e.g., green hydrogen). Corporations should be mandated to reinvest profits to this end, instead of distributing them to shareholders, or use them for stock buybacks. Social conditionalities might be employed to support the necessary acquisition of skills by the workforce and give works councils a role in co-shaping the transformation process (Mazzucato and Rodrik 2023, Raza et al. 2025). Given the urgent need to reduce external dependencies and safeguard strategic sectors of the EU economy, while, at the same time, accelerating the green and digital transformation, EU trade policy must not only be leveraged to support this process but combined with industrial policy measures to reach the complementary aims of economic security and the green and digital transformation. 4.3 Combine diversification and import substitution As a short-term strategy supported by the EC since the COVID-19 pandemic, with respect to critical supply chains, diversification efforts have remained half-hearted. While useful, if left to companies, diversification will result in rather minimalist shifts, as illustrated by the China Plus One strategy employed by many firms after the pandemic, which essentially resulted in establishing an additional production outlet in one other South-East Asian country (e.g., Vietnam, Malaysia, Thailand and India). The reduction of risk exposure desired by diversification has thus remained limited, as supply chains remain concentrated in one region. If, for instance, during a global health emergency, critical medicines have to be procured from both China and India(instead of China alone), the risk of transport and logistical interruptions, as well as from export restrictions imposed by the respective governments, remains high. EU trade policy could be employed to strengthen regional diversification by increasing import duties (i.e., diversification tariffs) on critical products from certain countries/regions(Felbermayr 2025), while providing incentives to relocate production to other countries/regions, including in the regional proximity of the EU(near-shoring) or to the EU itself(re-shoring, home-shoring). The potential of a comprehensive and systematic strategy of diversification of critical imports, including near- and home-shoring, has so far not been fully exploited but should be seen as an essential element of economic security. Wherever possible, import diversification should be complemented by import substitution, to alleviate structural dependencies by eventually becoming fully self-reliant. A case in point is energy. While in the short and medium term diversification of imports of oil and natural gas is important, the EU should accelerate the green energy transformation, as this presents the only option to eliminate the respective external dependency in the long run. Moving Beyond Neoliberalism in EU Trade Policy 19

Similarly, this applies to critical minerals, batteries, and other green and digital tech products. While full substitution of imports is not viable in the short and medium term, the EU needs to employ its policy arsenal, including trade policy, to reduce strategic dependencies by a combination of diversification and import substitution, with the strategic objective being the build-up of a circular economy in the EU within the next 15-20 years. 4.4 Expand the sustainable trade agenda As described in Section 2, the EU’s commitment to promoting social and environmental standards via its trade policy has come under pressure recently, with the EU backtracking on recent regulatory initiatives, such as the EU CSDDD and EUDR. Also, except for human rights – and recently climate – clauses having become essential elements and thus sanctionable, the provisions of trade and sustainability(TSD) chapters in EU trade agreements have by and large remained non-binding and limited in scope. Also, with the partial exception of the EUDR, the EU has not considered pro-actively reducing its trade-related carbon footprint by way of reducing imports that are emission-intensive or lead to biodiversity loss. In contrast, novel agreements like the Agreement on Climate Change, Trade and Sustainability(ACCTS), concluded in 2024 between New Zealand, Iceland, Switzerland and Costa Rica, go one step further. ACCTS not only liberalises trade for environmental goods and services, but also includes binding disciplines to phase-out most fossil fuel subsidies(Manak et al. 2025). In other words, trade for environmentally friendly goods and services is facilitated upon the condition that fossil fuel subsidies are reduced. Based upon the same principle, contingent trade agreements have been proposed as a way to motivate environmental protection by linking the granting of trade preferences to reaching a certain environmental target, for example, maintaining(or increasing) the forest cover of the tropical rainforest in a country (Harstad 2024). Upon the basis of such innovative examples, the EU’s sustainable trade agenda should extend beyond TSD chapters and pro-actively mainstream environmental objectives into the core of trade agreements. However, given geopolitical and domestic pressure from corporate interests, there is now a real danger of backtracking on, if not abandoning, the sustainable trade agenda in the EU. This would not only be a betrayal with respect to the norms the EU has championed for many years, but also another sign of the EU exhibiting double standards, when they fit its interests. As far as the EU’s TSD agenda and other trade initiatives, such as the EUDR or CSDDD, are concerned, the real problem is typically not that trade partners refute such measures as a matter of principle, but that often partners have to cope with rather burdensome compliance costs to meet the respective social and environmental standards. Acceptance is thus conditional upon implementation support, which the EU has traditionally seen as outside the remit of trade policy, except for aid for trade measures as part of its development cooperation policies. Enhanced cooperation on implementation, by way of more EU financial support and capacity building, is thus essential for acceptance and would show partners that the EU is serious about upholding standards, while also committing to honour its obligations under international law. On a more general level, the overall approach to including climate and environmental issues in the EU’s trade agenda needs to become more aggressive in terms of tackling its traderelated emissions, with respect to both emissions embedded in imports and those associated with transport. ACCTS and contingent trade agreements might inspire new approaches that not only target the reduction of trade-related emissions more effectively, but also actively contribute to nature conservation and biodiversity. 4.5 Promote win-win and honest international cooperation While trade policy is conventionally framed as a form of international cooperation, it must not be overlooked that trade negotiations are always governed first and foremost by self-interest and that the parties involved operate on the basis of different 20 Moving Beyond Neoliberalism in EU Trade Policy

power resources. The EU has taken it for granted that, given its large internal market, the balance of power in trade negotiations is usually tilted in its favour, and at least sometimes used this to coalesce weaker partners into rather one-sided agreements. Alas, this soft imperialism(Hettne and Söderbaum 2005) is arguably coming to an end. Current global power shifts have come at the detriment of the EU. Emerging powers, including India, Indonesia, Turkey, Brazil, Iran and South Africa, push South-South cooperation(e.g., in the BRICS) and are become more demanding and selective in their trade policy choices. Given strong global demand, countries rich in raw materials have the choice to cooperate with a host of interested countries, not just the EU. Last, but not least, the recent acceptance of Trump’s tariff dictate by the EU has not sent a message of strength to the world. A realistic assessment of its declining power would indicate that in this new constellation the EU can only promote its interests if it actively engages in real partnerships. Such an approach would have to be based upon honest efforts to seriously address the concerns of its existing and potential trading partners. Only upon the basis of a real commitment to mutual cooperation and benefit can the EU pursue its goals, for instance, of diversifying raw materials and energy supplies. This will also entail a more flexible approach to trade policy making. The overly ambitious, complex and time-consuming DCFTA will have to give way to an approach that is more attuned to the essential needs of both the EU and trading partners. This might involve a WTO-minus and a WTO-plus agenda at the same time. WTO-minus, if, for instance, a trading partner has a strong preference to exclude services or industrial sectors from the scope of negotiations; WTO-plus, if the partner wants to include other issues, such as technology transfer, migration and tax cooperation, which are seen as outside of the WTO framework. What is also important for such a new approach is to combine trade policy instruments with other policies, including development cooperation or environmental policies, to enhance the effectiveness of implementation. If, for instance, green energy cooperation is an explicit goal of a trade agreement with a North African partner, this should be complemented by EU financial programs to fund such projects and support local infrastructure development, technical skills training or the build-up of local green tech industries. Currently non-binding and limited in scope, instruments such as the EU’s Raw Material Partnerships and the new Clean Trade and Investment Partnerships would need to be developed further to this end(Jütten 2025, Küblböck et al. 2025). 4.6 Adopt a pragmatic and more balanced approach to multilateralism The EU has traditionally presented itself as the unwavering defender of the rules-based international order. The abandonment of the multilateral trade regime, as embodied in the WTO, and the return to a power-based approach to trade policy making by the USA has thus taken the EU by surprise. While the EU still insists on a return to multilateralism, its approach to WTO reform falls into the dual trap of unrealistic maximalism and ideological ignorance. Unrealistic maximalism shows itself, for instance, in its declared intention“to pursue reform of the WTO across all of its functions”, as well as in its insistence to promote plurilateral negotiations among likeminded countries to push liberalisation further, thus in reality eroding the consensus-based operating logic of the organisation(European Commission 2021). Ideological ignorance is visible in neglecting the deep reservations held by many countries of the Global South with respect to the biased structure of the current regime, exceedingly reducing domestic policy space and binding them into rules(e.g., on intellectual property rights) that inhibit their possibilities for technological catch-up, as well as their ability to safeguard public policy objectives, as seen, for example, during the pandemic with respect to the failure to agree upon an effective TRIPS waiver. A more nuanced and pragmatic approach to WTO reform would instead start by engaging in debate with WTO members on identifying(1) which elements of the current regime cannot be dispensed of, thus being of a foundational importance to any future regime; and(2) which new elements are of importance to members to make the system more balanced with respect to the needs of the Global South(Polaski 2022). If the EU is serious about its commitment to the multilateral trade regime against Moving Beyond Neoliberalism in EU Trade Policy 21

the background of stiff resistance from the USA to WTO reform, it will need to forge a coalition of the willing. The latter will only be possible if the agenda of deep integration and progressive liberalisation, as inscribed in the current WTO system, is substituted for a system that respects the often-ignored interests of the large majority of its members. 5. CONCLUSION The international trading system is set up for definitive change. Nostalgia for the good old days of hyper-globalisation and the liberal international order is neither warranted nor helpful. Progressive policymakers are well-advised to adapt to a new reality, in which political-economic competition between the great powers is likely to increase and trade policy is used for promoting national security objectives, including by extracting concessions from other countries. Given such an environment and the EU’s pronounced external dependencies, EU trade policy will have to be realigned and made to serve an economic policy strategy that is no longer focused on supporting export-led growth but is based on the concept of defensive regionalism. Such an economic model wants to leverage domestic sources of growth, in particular by stepping up investment in the green and digital transformation, and combine this with extending the European social model, while using trade policy to promote the security of the supply of critical goods, increase the EU’s economic resilience and promote international cooperation. The six guiding principles, as presented in this policy brief, aim to support such a new trade policy agenda. With respect to international economic governance issues, the EU should spearhead a discussion about a new and more balanced global trade order. By deepening the sustainable trade agenda in cooperation with trade partners and helping trade partners to implement their own green transformation processes, the EU could regain international recognition and help to promote a more cooperative post-neoliberal international system. 22 Moving Beyond Neoliberalism in EU Trade Policy

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Endnotes 1 The Global Trade Alert Database reports an increase of discriminatory trade measure between 2010 and 2025 from 263 to 3,143, that is, by a factor of roughly 12. The most frequently employed discriminatory measures are grants, loans, controls on trade and investment, as well as tariffs and tariff-rate quotas. In 2025, the highest number of measures was implemented by the USA, followed by India, Australia, China and Brazil. See:“The world’s trade and industrial policy watchdog”. Global Trade Alert. 2 For more information on S2B, see:“European Trade Justice Coalition”. ETJC. 3 The results on WTO trade effects in Campos et al.(2025), Kommerskollegium(2019) or Larch et al. (2019) are based on structural gravity models, including domestic sales. The effects reported by former studies based on gravity models without domestic sales are typically smaller with 23% on average between WTO members(see meta-analysis in Campos et al. 2025). 4 For more information, see:“Sustainability impact assessments”. European Commission. 5 See: Giordano, E.(2025)“6 in 10 Europeans say von der Leyen should quit after trade deal with Trump, survey finds”. Politico, 9 September. Moving Beyond Neoliberalism in EU Trade Policy 27

About the authors WERNER RAZA Werner Raza holds a PhD in Economics from the Vienna University of Economics and Business, and a Venia Docendi in Political Science from the University of Vienna. Since 2010 he has been Director of ÖFSE – the Austrian Foundation for Development Research. His areas of work include international economics, trade policy analysis, development finance and economics, as well as resource and environmental economics. He has taught at universities in Austria and been a visiting professor at the University of Buenos Aires. BERNHARD TRÖSTER Bernhard Tröster is a Senior Researcher at the Austrian Foundation for Development Research(ÖFSE). He holds a doctorate degree in economics from the Vienna University of Economics and Business (2018) and has specialized in international development, global value chains analysis, commodity markets, and financial markets. His expertise includes analyzing the socio-economic impacts of trade policies, global trade governance, and the challenges developing countries face within the global economic system. 28 Moving Beyond Neoliberalism in EU Trade Policy

ABOUT THE FOUNDATION OF EUROPEAN PROGRESSIVE STUDIES(FEPS) The Foundation for European Progressive Studies(FEPS) is the think tank of the progressive political family at EU level. Its mission is to develop innovative research, policy advice, training and debates to inspire and inform progressive politics and policies across Europe. FEPS works in close partnership with its 76 members and other partners-including renowned universities, scholars, policymakers and activists-, forging connections among stakeholders from the world of politics, academia and civil society at local, regional, national, European and global levels. www.feps-europe.eu| X/Instagram:@FEPS_Europe| Facebook:@FEPSEurope ABOUT FRIEDRICH-EBERT-STIFTUNG(FES) EUROPEAN UNION& GLOBAL DIALOGUE| BRUSSELS OFFICE The EU Office of the Friedrich-Ebert-Stiftung(FES), with its headquarters in Brussels and activities in Brussels and Strasbourg, was opened in 1973. It participates in the European integration process, backs and accompanies the interests of the Federal Republic of Germany in Europe and contributes to shaping the external relations of the European Union. As an agency of dialogue, education and consultancy, the Friedrich-Ebert-Stiftung thereby fulfils its special role as a‘political network organisation’ for and with the various European institutions. The Friedrich-EbertStiftung’s European and worldwide network facilitates political, economic, social and environmental dialogue between Germany and Europe, within Europe and between Europe and the rest of the world and also at global level. www.brussels.fes.de ABOUT DAS PROGRESSIVE ZENTRUM(DPZ) Das Progressive Zentrum is an independent and non-profit think tank based in Berlin. Since 2007, our research, publications and events have helped stimulate ideas for societal progress, provided guidance for decisive political debates, and facilitated collaborative networks for progressives from across Germany, Europe and North America. Our mission is to guide politics towards a green and just transformation of society. ABOUT AUSTRIAN FEDERAL CHAMBER OF LABOUR(AK EUROPA) The Austrian Federal Chamber of Labour(BAK) is the legal body which represents the interests of approximately 4 million employees and consumers in Austria. It represents its members on all social, educational, economic and consumer policy-related issues at a national level and in Brussels at the European level. The main objectives of the AK EUROPA Office in Brussels are the representation of the BAK at the European Institutions and interest groups, the monitoring of EU activities and to transfer relevant information from Brussels to Austria, as well as to pass on the expertise and the viewpoints of the Chambers of Labour in Brussels. Moving Beyond Neoliberalism in EU Trade Policy 29

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