- Europe’s share of the global economy has been shrinking over time, a trend that is likely to continue as growth in Asia and America outpaces European growth. This is a threat to European influence.
- The EU’s share of global trade has nevertheless remained relatively stable as the European economy has grown more trade-intensive. The ‘Brussels effect’, whereby European regulations have global effects due to the size of the European market depends on the EU’s role in the global economy. It is not clear if the EU can continue to compensate for a diminishing share of GDP with increased trade intensity.
- The relatively stable period after the Cold War, characterised by US dominance and increasing globalisation, is giving way to competition between major powers (like the US and China). This instability is particularly worrying for Europe, as its economy depends heavily on international trade and stable global markets.
- Over-reliance on regulations risks undermining EU openness and its attractiveness as a trading partner. While regulations can be beneficial, excessive or overly stringent regulations can make it difficult and costly for other countries to trade with the EU. This can reduce the EU’s attractiveness as a trading partner and thereby also weaken the EU’s regulatory influence.
- The Brussels effect allows the EU to influence global regulatory standards, but its effectiveness depends on the EU’s economic weight in global trade. Therefore, EU regulations should be targeted and prioritised to minimise burdens on the European economy and maintain openness. Extraterritorial regulations (those that apply outside the EU’s borders) should be reserved for high-priority cases.
- The EU should co-operate closely with the US, leveraging the Trade and Technology Council as a forum to resolve or manage trade disputes, co-ordinate policy and engage in regulatory dialogue.
- The EU should manage its relationship with China carefully, both embracing the opportunities for European consumers while selectively confronting China when strategic interests dictate.
- To safeguard stability, the EU should help build a supplemental legal order outside the World Trade Organisation (WTO), through both continuing to expand its global network of free trade agreements and allowing neighbouring countries to plug into its markets and regulatory sphere.
About the author:
Aslak Berg is a research fellow at the Centre for European Reform focusing on trade policy, international economics, regulatory policy and regional integration.