The State of the (European) Union Must Be Open

One can imagine Commission President Ursula von der Leyen being in a good mood approaching her state of the union address, vaccine roll-out having turned into a success and a busy programme of initiatives around climate change, industrial policy, and digital transformation now outlined. Yet beneath them all lies a tension that is threatening to delay or derail many of them.

Put simply, whether it is more open or autonomous, for which usually read protectionist, Europe. It cannot be both, they are in competition. While that remains unclear, it certainly can’t be strategic either, as per the third leg of the EU trade mission statement.

Take for example this trade paragraph from Renew Europe’s recent Paris Declaration, which starts by calling for increased protectionism, but then wishes to promote free trade and interests beyond the borders:

“The pandemic has shown that Europe is in some cases too dependent on third countries. It shall become a real power, with the ability to act and decide by and for itself. We promote a Europe that does not shy away from defending our values, interests and standards, within and beyond our borders, while promoting rule-based free trade and fair competition, multilateralism, human rights and sustainable development goals. To this end, we have the courage to adapt our toolbox and change the orientation of industrial, competition, energy, trade, foreign and defence policies.”

It should be self-evident that without an army the ability of the EU to project influence beyond the borders is reliant on economic openness, for if goods and services are not travelling between the EU and the world, then there is little leverage to do anything. But what we are seeing is a dangerous pretence, that we can close our borders in ways we choose, but that this will have no impact on our global standing or ability to achieve domestic goals.

Just ask the UK how that is working out. For example, how the UK’s aims to be a climate change leader stand alongside removing provisions from the Australia FTA in order to get a deal to show Brexit working.

Trade increases prosperity, that is widely acknowledged. It may have distributional consequences, which lie at the heart of many current domestic discussions, and which should be addressed. It has also always been linked with politics, and major issues from slavery to climate change. Trade should be a tool for positive change, but will be far less effective if markets close. The Carbon Border Adjustment Mechanism will provide little assistance against climate change if polluting economic activity remains unchanged behind borders.

Globally, these are times of transformation in our political economy. The strong belief that trade and open markets deliver positive results, which can be dated to the breakdown of the post second war settlement in the 1970s, is waning. Perhaps many of the aggregate economic benefits from this have been achieved in developed countries, and what is left is politically harder than the growth it would yield. Yet there is a risk of going backwards, meaning losing competitiveness, as we see in the UK.

The factors that have driven globalisation and trade, particularly technological ones, are here to stay. We should put them to use in tackling our new priorities, rather than hiding from them. That applies to a global issue like the climate emergency as well as domestic issues like left behind areas. We won’t be recreating the factories of the 1950s, not just because that doesn’t sit alongside climate change activities. We need to revive areas with meaningful production of what is in demand, much of which will be services.

As we have explored in our New Globalisation series, our current economic system is rather a hybrid of open trade and government regulation. Technology, consumers and profits driving major corporates to develop sophisticated supply chains, while working with and around government interventions such as incentives, regulations and treaties. By and large, it works. It delivered what we needed to tackle the covid pandemic, and looking at the comparison between the duration of shortages of personal protective equipment versus that of drivers, where the first came from global trade and the second is typically domestic, we can see that closing trade does not make us more resilient.

It should be job of leaders at times of transformation to act as a guide, to set out a hopeful path, rather than follow the fearful. For von der Leyen this should mean setting out that it is through being open that the EU delivers its goals, whether of climate change or economic growth. That this openness is not some sort of exaggerated classical neo-liberal construct, but one that is moulded to our current realities. That the EU is already one of the most autonomous economic actors in terms of freedom to act, yet will always be dependent on others to buy and supply our goods and protect our environment, and that is not a bad thing.

In short, the EU cannot be a global leader in anything unless it engages with the world. It is time to stop playing with protectionist language and be clear that the EU is open, and indeed only through being so will local and global challenges be tackled.