Will the EU’s approach to strategic autonomy prove to be self-defeating?

Will the EU’s approach to strategic autonomy prove to be self-defeating?

As a result of a review of the EU’s trade policies, the European Commission (EC) adopted the concept of strategic autonomy as one of its guiding principles.

It defines this as “the EU’s ability to make its own choices and shape the world around it through leadership and engagement, reflecting its strategic interests and values”. In pushing the idea, the EC seems to be driven by a number of factors. These include worries about industrial competition, particularly in technology, that also dovetail with geopolitical rivalry, notably with China. The EC also has concerns about control over the global value chains that drive trade, and how to promote their resilience and sustainability.

The concerns mean that strategic autonomy in fact acts as an umbrella for a wide array of proposals currently under consideration. These include a more activist stance on industrial policy, regulatory interventions in a range of sectors, from digital markets to forestry, and measures that seek to “punish” trade partners for actions or policies that are deemed to harm EU commercial interests.

Some of these proposals are clearly intended to favour EU commercial interests, while others are more clearly targeted at various market failures and public policy objectives. But all have potentially trade-restrictive aspects, which in turn can have broader economic impacts.

Frontier quantified the effects of trade restrictions that could arise as a result of the EU’s pursuit of strategic autonomy, for a report commissioned by European Centre for International Political Economy (ECIPE). We find that the strategic autonomy acts as a tax on the EU’s global trade, which in turn could reduce EU national income by between $12-$22billion on an annual basis. These are static effects. If we account for long run effects on productivity, the impacts could be 3-5 times higher. Smaller EU-member states are generally worse off than larger ones: The impacts on Ireland are close to 4 times bigger than they are for France, the impacts on Estonia close to twice those on Germany.

Recognising that the main underlying political concerns driving strategic autonomy are unlikely to dissipate, and that indeed some are justifiable on economic grounds, the results suggest that it is worth revisiting some of the proposals under consideration, or at least their mode of implementing. Efforts to reduce regulatory fragmentation, to reduce the incidence of “murky protectionism” associated with state financial support, and to eschew unilateralism in diffusing trade tensions could all reduce the costs the EU would otherwise impose on itself. Failing that, strategic autonomy would mark a substantial inward shift in the EU’s approach to trade, that could leave it worse off, and increase the fragmentation of global economic governance at a time when cooperation is at a premium.

Amar Breckenridge presented our report at ECIPE’s webinar yesterday. To watch a recording of this, please click here.

To read the full report, please click here.

For further information please contact media@frontier-economics.com or call +44 (0) 20 7031 7000.