Europe’s trade strategy: promise or peril?

Some Europeans are tempted to shift trade policy away from laissez-faire. As China and other emerging powers seek to lock up foreign trade, investment and resources for their firms, EU member states are tempted to respond. In straitened circumstances, and desperate for sources of growth, European governments are drumming up exports through commercial diplomacy and by brokering deals, particularly in energy. Member states differ on how far governments should directly try to steer trade strategy; but all have embarked on a more systematic engagement with trade. This is not new policy, but more countries have been pursuing it, with more vigour, since the onset of the economic crisis.

A more politicised foreign economic policy is not entirely without merit. If EU member states worked together, they might be able to induce rising powers to rely more on markets, and less on state control.

However, the current tangle of competing ‘geo-economic’ policies is risky, and ineffective. Fiercer competition between EU member states does not augur well for the longer-term challenge of managing relative decline. Rising powers are proving adept at playing European countries off one another to strengthen their own positions. And most grievously, the EU is ignoring what most matters: the underlying productivity of its economy.

Rather than obsessing about exports to the rest of the world, the EU should focus on measures to boost demand and internal trade through the single market. This, rather than politically-motivated trade deals, is the route to improving European living standards.