The era of free trade as the unquestioned organising principle of the global economy is over. What has replaced it is something more complicated: a world in which trade policy is consciously used as an instrument of industrial policy, national security strategy and geopolitical competition. The United States, China and increasingly the EU have each embraced forms of strategic trade intervention that the consensus economics of the 1990s and 2000s would have classified as protectionism. The difference is that what was once called protectionism is now called “economic security” — and the political coalition defending it is considerably broader than it used to be.
How we got here
The narrative of the 1990s and 2000s was one of inevitable globalisation: falling trade barriers, expanding supply chains, converging economic models, and a rules-based international order anchored in the WTO. That narrative was always more contested than its proponents acknowledged — the economic gains from trade liberalisation were real but unevenly distributed, and the communities that bore the adjustment costs were real communities with votes. When China’s rapid manufacturing expansion eliminated jobs in European and American industrial regions in the 2000s and 2010s, the political backlash was both predictable and predicted, and largely ignored by the mainstream policy consensus until it was too late to manage it gracefully.
The COVID pandemic and Russia’s invasion of Ukraine then exposed, in rapid succession, the supply chain vulnerabilities that deep globalisation had created. PPE manufactured in China, semiconductors manufactured in Taiwan, gas transported from Russia — the concentrated geography of global production had created single points of failure that were not visible as risks until they became crises. The policy response — reshoring, friend-shoring, strategic stockpiling, domestic industrial subsidies — represents a structural shift in how governments think about the relationship between trade and security.
The EU’s adaptation: between free trade and strategic autonomy
The EU occupies an awkward middle position in this landscape. As the world’s largest trading bloc, it has the most to lose from a fragmented global trading system. As a strategic actor, it has legitimate security interests in reducing dependency on suppliers that can weaponise that dependency. The EU-China trade analysis and our coverage of EU-US trade tensions both capture this tension: the EU wants to maintain open trade while selectively reducing strategic vulnerabilities.
The practical tools the EU is deploying include the Anti-Coercion Instrument (allowing trade countermeasures against countries that use economic pressure for political ends), the Carbon Border Adjustment Mechanism, foreign direct investment screening, and — most controversially — the willingness to use state aid for industrial policy in clean energy and semiconductor manufacturing. The Mercosur deal represents the other side of the coin: deepening trade with reliable partners as an alternative to dependency on less reliable ones. Whether this portfolio of measures adds up to a coherent strategy or a reactive set of individual responses to specific crises is the question that European trade economists are debating with increasing urgency.
