Main Analysis

For most of its history, the European Union approached trade as a fundamentally open and rules-based enterprise. The goal was to reduce barriers, expand markets, and embed commerce in a framework of agreed rules administered through the World Trade Organization. Europe was, by conviction and by interest, among the world’s foremost champions of open trade - a posture that suited an economy built on exports and on access to global markets.

That posture has been changing, and the change is one of the most significant shifts in European external policy of the past decade. The Union has begun, deliberately and increasingly openly, to treat access to its market not only as a commercial opportunity to be extended but as a strategic asset to be defended and, when necessary, used as leverage. The world’s largest market is being reconceived as a source of power that can be wielded - to deter coercion, to counter unfair competition, and to protect strategic interests in a global environment that has become markedly harsher.

This week’s Power Map examined the foundations of European trade power - the exclusive competence, the unity, the leverage of the single market. This Review examines what Europe has begun to do with that power: the development of a new arsenal of trade defence instruments, the logic behind them, and what their emergence reveals about how Europe sees its place in a more dangerous world.

The shift in European trade thinking did not happen in a vacuum. It was driven by a series of experiences that taught Europe the limits of its open, rules-based approach in a world where other major powers were using economic tools for strategic ends.

China’s use of economic pressure for political purposes was one catalyst. When member states took positions that displeased Beijing, they sometimes found their exports to China obstructed through informal measures - customs delays, regulatory obstacles, consumer boycotts encouraged by the state. These episodes demonstrated that economic interdependence could be weaponised, and that Europe’s openness left it vulnerable to coercion it had no ready means to counter.

The behaviour of the United States also contributed, in a different way. American measures - tariffs imposed on national security grounds, subsidy programmes that disadvantaged European producers, the assertive use of American economic power even against allies - taught Europe that it could not rely on the rules-based system to protect its interests when major powers chose to act outside it. If even Europe’s closest ally was prepared to use economic leverage assertively, Europe needed its own instruments rather than faith in shared rules.

And the broader erosion of the World Trade Organization as an effective forum for resolving trade disputes removed the framework on which Europe’s rules-based approach had depended. With the WTO’s dispute settlement system substantially paralysed, the assumption that trade conflicts could be resolved through agreed multilateral rules became untenable. Europe was forced to develop its own means of defending its interests, because the system it had championed could no longer be relied upon to do so.

In response, the Union has built a set of trade defence instruments more assertive than anything in its previous repertoire - tools designed not to open markets but to defend Europe’s market and Europe’s interests.

The most striking is the Anti-Coercion Instrument, adopted to give the Union the means to respond when a third country attempts to pressure it - or one of its member states - through economic measures. The instrument allows the Union to identify coercion and to respond with countermeasures of its own, from tariffs to restrictions on access to European markets, public procurement, or services. Its purpose is partly deterrence: by demonstrating that economic coercion against Europe will be met with a response, the Union hopes to discourage the coercion in the first place. It is, in effect, a doctrine of economic deterrence built into trade law.

Alongside it sits a foreign subsidies regulation, designed to address a distortion that traditional trade defence missed: companies operating in Europe that benefit from subsidies provided by foreign governments, which allow them to outcompete European firms or to acquire European companies on advantageous terms. The regulation gives the Commission power to investigate and act against such foreign subsidies within the European market - extending the logic of Europe’s strict internal state aid rules to the foreign subsidies that those internal rules could not reach.

The Union has also strengthened its mechanisms for screening foreign investment in strategic sectors, its tools for countering subsidised imports, and its capacity to protect critical supply chains and technologies. Taken together, these instruments represent a comprehensive shift: from a trade policy oriented almost entirely toward openness to one that combines openness with a serious capacity for defence.

Europe’s Trade Defence Arsenal - Key Instruments

Anti-Coercion Instrument: countermeasures against economic pressure from third countries
Foreign Subsidies Regulation: action against foreign-subsidised firms in the EU market
Investment screening: review of foreign acquisitions in strategic sectors
Trade defence measures: tariffs and remedies against subsidised or dumped imports
Underlying shift: from purely open trade to openness combined with strategic defence
Driving forces: Chinese coercion, assertive US economic policy, WTO paralysis

The deeper significance of these instruments is what they reveal about how Europe has come to understand the relationship between economic power and security.

For decades, European thinking treated trade and security as largely separate domains. Trade was about prosperity, governed by economic logic and the pursuit of mutual gain. Security was about defence, governed by a different logic and conducted through different institutions. The two were connected at the margins but understood as fundamentally distinct.

That separation has collapsed. Europe now understands, as other major powers have long understood, that economic interdependence is itself a domain of strategic competition - that supply chains can be choke points, that market access can be leverage, that economic tools can achieve what military tools cannot, and that an economy as large and as open as Europe’s is both a source of power and a surface of vulnerability. The new trade instruments are the institutional expression of this understanding: the recognition that Europe must be able to defend its economic interests with the same seriousness it would bring to defending its territory.

This is a profound change in European self-conception, and it remains incomplete and contested. Europe’s instincts and interests still favour openness; the new defensive posture sits uneasily alongside the free-trading identity that Europe has held for generations. There is genuine debate within Europe about how far to go - about whether the new instruments protect European interests or risk provoking the very economic conflict they are meant to deter, about whether Europe can defend itself without abandoning the openness on which its prosperity depends. But the direction is clear: Europe has decided that it can no longer afford to treat its market only as a commercial asset. It must also treat it as a strategic one.

The weaponisation of trade has direct and growing consequences for companies operating across the European border in either direction.

For foreign companies operating in Europe, the new instruments mean that the terms of market access are becoming more conditional and more scrutinised. Foreign subsidies that confer a competitive advantage may attract investigation. Acquisitions of European companies in strategic sectors face screening that did not previously exist. The assumption that the European market is open on uniform terms to all comers is giving way to a more selective approach that distinguishes between commerce the Union welcomes and activity it regards as strategically problematic.

For European companies, the instruments offer a measure of protection against foreign competition that benefits from subsidies or other distortions - but they also introduce the risk of retaliation, as the countries against which the instruments are deployed respond with measures of their own. A European company with significant exposure to a market that becomes the target of European trade defence may find itself caught in the resulting friction.

For companies operating across the transatlantic relationship in particular, the new European posture is a development to watch closely. As both Europe and the United States become more willing to use economic tools strategically - and more willing to use them against each other, not only against shared rivals - companies operating in both markets face a more uncertain and more politically charged environment than the open, rules-based system they were built to navigate.

The Trade Lawyer Who Watched the Mood Change

Sophie Lindqvist has practised trade law in Brussels for twenty-two years, advising companies on European trade policy and the instruments that govern it. She has watched the European approach to trade shift over her career from one preoccupation to its near-opposite.

“When I started, the entire conversation was about opening markets,” she says. “Reducing tariffs, concluding agreements, expanding access. Trade defence existed, but it was a niche - anti-dumping cases on specific products, technical work at the margins. The dominant spirit was openness. Europe believed in the system and worked to expand it.”

The change, she says, came gradually and then quickly. “There was a slow erosion of the assumption that the rules would protect us. Then a series of shocks - the coercion episodes, the subsidy distortions, allies behaving in ways we did not expect. And at some point the conversation flipped. Now the questions I get are about defence. How do we protect this acquisition from being copied by a subsidised competitor? What happens if this country retaliates? How does the Anti-Coercion Instrument actually work?”

She is struck by how far the institutional culture has moved. “The Commission’s trade people were, for most of my career, free traders to their core. That was the identity. Now they think about leverage, about strategic vulnerability, about economic security. The vocabulary has changed completely. They still believe in openness, but they no longer believe openness alone is safe.”

Her assessment is measured. “I am not sure the new instruments will all work as intended. Some may provoke more than they deter. But the underlying judgment is correct. The world Europe built its trade policy for - the rules-based, open, depoliticised world - does not exist anymore. Europe had to adapt, and it is adapting. The question is whether it can defend itself without becoming the thing it spent decades arguing against.”

The Deterrence Logic

The most interesting feature of the Anti-Coercion Instrument is that its designers hope it will never be used. Its purpose is deterrence - and deterrence, if it works, operates by making the threatened action unnecessary.

The logic is borrowed, consciously, from the security domain. A credible capacity to retaliate against economic coercion should, in theory, discourage the coercion from occurring. A country contemplating economic pressure against Europe must now weigh the prospect of a coordinated European response - a response that the Union has given itself the legal means to mount. If the deterrent is credible, the calculation changes, and the coercion is deterred before it begins.

Whether economic deterrence can work as military deterrence is supposed to is an open question, and the parallel is imperfect. Economic measures are harder to calibrate than military ones, the costs of economic conflict fall on private actors in complex ways, and the credibility of the threat depends on a political will to follow through that twenty-seven member states must sustain together. A deterrent that the Union proves unwilling to use when tested would quickly lose its force.

But the emergence of a deterrence logic in European trade policy is itself the signal worth noting. Europe is beginning to think about its economic power the way powers think about their military power - as something to be held in reserve, demonstrated in its readiness, and used to shape the behaviour of others without necessarily being deployed. This is the thinking of an actor that has come to understand its market as a strategic instrument. Whether Europe can wield that instrument with the discipline and unity that strategic power requires is the test that lies ahead.

Europe spent generations believing that trade was only about commerce and that open markets and shared rules would keep it safe, and it has spent the past decade learning, instrument by instrument, that the world’s largest market is also a weapon - one it must be prepared to use in a world that no longer plays by the rules Europe championed.