London Daily

Focus on the big picture.
Tuesday, Jul 22, 2025

Europe First: Brussels gets ready to dump its free trade ideals

Europe First: Brussels gets ready to dump its free trade ideals

More open trade used to be a no-brainer for the EU. Now European industries are fighting to survive.

The last big defender of rules-based open trade — the European Union — is about to fall.

It is happening in slow-motion and the impact will be painful. If the world's largest trading bloc gives up on the concept of free trade, the entire global economy will be hurt.

But such an outcome seems increasingly likely, as the European Commission and its powerful trade department come under intense pressure to join China and the United States in a game of economic self-interest and protectionism. 

The era of Europe First may be about to begin.

“The new assertive industrial policy of our competitors requires a structural answer," Commission President Ursula von der Leyen declared in a critical intervention on Sunday. "Europe will always do what is right for Europe."

For decades, more globalization was a no-brainer for Brussels, providing business opportunities and jobs. Growing calls from Paris and Washington for more strategic autonomy, or stringent export restrictions, were dismissed by the liberal European Commission which von der Leyen now leads.

This free-trading ethos has finally hit a brick wall in the form of U.S. subsidies for clean technology, such as American-made electric cars. In order to understand what went wrong, it's vital to go back to the failed experiment in free trade with China.

The West tried to pull Beijing into the multilateral trading system — and it didn't work. China only doubled down on its state-driven economic model. Its rapid growth and dominance in key technological fields have pushed both Washington and Brussels to rethink their trade strategies in recent years.

“The EU has always supported free trade and this is a good thing,” Kristjan Järvan, the Estonian minister for entrepreneurship, said last month. “But now, we see that non-democratic powers are trying to use it against us.”

As the West failed in trying to convert China to free trade, the U.S. decided that "if you can't beat them, join them," said John Clancy, a former EU trade official turned consultant. "The EU, which has always tried a balancing act between the two sides, is now finding that’s a difficult place to be.”

Under pressure from France, Brussels slowly started building up its arsenal of trade defense weapons to fight back against unfair practices from both China and the then U.S. President Donald Trump.

Now, the EU is thinking about picking up its big guns and joining in a protectionist battle involving state subsidies.

The key trigger this time is not Chinese economic aggression but climate-friendly reforms emanating from Joe Biden’s White House. His Inflation Reduction Act (IRA) paves the way for $369 billion worth of subsidies and tax breaks for American green businesses — but only if they are assembled and key parts, such as car batteries, are made in the U.S. 

The law was seen as a “slap in the face” and a “game changer” in Brussels, especially coming from a Democratic president. Angry EU politicians accused Washington of following in China’s footsteps. 

The IRA has led to a push from first Paris and then Berlin, to develop new subsidy measures that could include requiring European manufacturers to use home-grown products or technologies for them to qualify for EU state subsidies. That’s a concept French President Emmanuel Macron has called “Buy European.”

Such a Franco-German drive is stoking the pressure on the Commission, said David Henig, a trade expert with the European Centre For International Political Economy think tank. “The Commission is in a really tough place on this,” because the political tide in Europe is changing, Henig said.

In her speech in Bruges on Sunday, von der Leyen said it was time for Brussels to reassess its rules over state subsidies for European industries. A trade war with the U.S. is in neither side’s interests in the middle of an actual war, she said. But a robust response to the threat to European manufacturing posed by the IRA will be needed. 

“There is a risk that the IRA can lead to unfair competition, could close markets, and fragment the very same critical supply chains that have already been tested by COVID-19," she said. “We have all heard the stories of producers that are considering to relocate future investment from Europe to the U.S.” 

While working with Washington to try to address “some of the most concerning aspects” of the law, the EU will need to change its own rules to allow more state subsidies for clean technology, von der Leyen said. 


'Dangerous game'


It won’t be straightforward. According to von der Leyen, extra EU funding may also be needed — and that is certain to trigger a heated debate among its 27 member countries about where the cash will come from.

But if the EU, one of the biggest, last big believers in open and free trade, does throw in the towel and enters a global subsidy race, it would not just undermine the global trade rulebook and further weaken the World Trade Organization. It would also send a key signal to other countries: forget about the rules, just look after yourself.

"We call on our members: don't look inward, don't isolate yourself," WTO chief Ngozi Okonjo-Iweala warned at a press conference with German Chancellor Olaf Scholz last month. 

She’s not a lone voice. The EU’s more liberal, free-trading countries are desperately trying to preserve their ideals. “A subsidy rally is a very dangerous game,” Czech Trade Minister Jozef Síkela told reporters last week, warning that the winner might be Beijing. 

There are also clear fault lines within the European Commission itself. Trade Commissioner Valdis Dombrovskis called a subsidy race “expensive and inefficient.” The EU’s competition chief Margrethe Vestager said last week that nobody wants a subsidy war. To the Commission’s ultra-liberal trade and competition departments, the whole idea is a nightmare. 

The real fight within the EU has only just begun, two EU officials said. But the blame doesn’t lie in Brussels, but in Washington and Beijing. “The EU is not the one who closed the door on the global free trading system,” one of the officials added. 

Last week, Biden raised hopes that a compromise may be possible, promising to seek ways forward that do not hurt America’s allies in Europe. Yet so far no concrete details have emerged and privately many on the European side remain skeptical. 

“At a certain point, you have to face the reality,” said Holger Hestermeyer, a trade expert at King’s College London. “Even if you defend the system, you can’t live in the illusion that it’s the same world as before.”

Newsletter

Related Articles

0:00
0:00
Close
US Treasury Secretary Calls for Institutional Review of Federal Reserve Amid AI‑Driven Growth Expectations
UK Government Considers Dropping Demand for Apple Encryption Backdoor
Severe Flooding in South Korea Claims Lives Amid Ongoing Rescue Operations
Japanese Man Discovers Family Connection Through DNA Testing After Decades of Separation
Russia Signals Openness to Ukraine Peace Talks Amid Escalating Drone Warfare
Switzerland Implements Ban on Mammography Screening
Japanese Prime Minister Vows to Stay After Coalition Loses Upper House Majority
Pogacar Extends Dominance with Stage Fifteen Triumph at Tour de France
CEO Resigns Amid Controversy Over Relationship with HR Executive
Man Dies After Being Pulled Into MRI Machine Due to Metal Chain in New York Clinic
NVIDIA Achieves $4 Trillion Valuation Amid AI Demand
US Revokes Visas of Brazilian Corrupted Judges Amid Fake Bolsonaro Investigation
U.S. Congress Approves Rescissions Act Cutting Federal Funding for NPR and PBS
North Korea Restricts Foreign Tourist Access to New Seaside Resort
Brazil's Supreme Court Imposes Radical Restrictions on Former President Bolsonaro
Centrist Criticism of von der Leyen Resurfaces as she Survives EU Confidence Vote
Judge Criticizes DOJ Over Secrecy in Dropping Charges Against Gang Leader
Apple Closes $16.5 Billion Tax Dispute With Ireland
Von der Leyen Faces Setback Over €2 Trillion EU Budget Proposal
UK and Germany Collaborate on Global Military Equipment Sales
Trump Plans Over 10% Tariffs on African and Caribbean Nations
Flying Taxi CEO Reclaims Billionaire Status After Stock Surge
Epstein Files Deepen Republican Party Divide
Zuckerberg Faces $8 Billion Privacy Lawsuit From Meta Shareholders
FIFA Pressured to Rethink World Cup Calendar Due to Climate Change
SpaceX Nears $400 Billion Valuation With New Share Sale
Microsoft, US Lab to Use AI for Faster Nuclear Plant Licensing
Trump Walks Back Talk of Firing Fed Chair Jerome Powell
Zelensky Reshuffles Cabinet to Win Support at Home and in Washington
"Can You Hit Moscow?" Trump Asked Zelensky To Make Putin "Feel The Pain"
Irish Tech Worker Detained 100 days by US Authorities for Overstaying Visa
Dimon Warns on Fed Independence as Trump Administration Eyes Powell’s Succession
Church of England Removes 1991 Sexuality Guidelines from Clergy Selection
Superman Franchise Achieves Success with Latest Release
Hungary's Viktor Orban Rejects Agreements on Illegal Migration
Jeff Bezos Considers Purchasing Condé Nast as a Wedding Gift
Ghislaine Maxwell Says She’s Ready to Testify Before Congress on Epstein’s Criminal Empire
Bal des Pompiers: A Celebration of Community and Firefighter Culture in France
FBI Chief Kash Patel Denies Resignation Speculations Amid Epstein List Controversy
Air India Pilot’s Mental Health Records Under Scrutiny
Google Secures Windsurf AI Coding Team in $2.4 Billion Licence Deal
Jamie Dimon Warns Europe Is Losing Global Competitiveness and Flags Market Complacency
South African Police Minister Suspended Amid Organised Crime Allegations
Nvidia CEO Claims Chinese Military Reluctance to Use US AI Technology
Hong Kong Advances Digital Asset Strategy to Address Economic Challenges
Australia Rules Out Pre‑commitment of Troops, Reinforces Defence Posture Amid US‑China Tensions
Martha Wells Says Humanity Still Far from True Artificial Intelligence
Nvidia Becomes World’s First Four‑Trillion‑Dollar Company Amid AI Boom
U.S. Resumes Deportations to Third Countries After Supreme Court Ruling
Excavation Begins at Site of Mass Grave for Children at Former Irish Institution
×