There are two well-established ideas in trade. Individually, they are correct. Combined, they can lead to a conclusion that is unfortunately wrong.
The first idea is that, across a range of economic sectors, the EU and the US have been engaged in a battle to have their model of regulation accepted as the global one, and that the EU is generally winning.
The second is that governments can use their regulatory power to extend strategic and foreign policy influence.
The conclusion would seem to be that the EU, which has for decades tried to develop a foreign policy, should be able to use its superpower status in regulation and trade to project its interests and its values abroad.
That’s the theory. It’s a proposition much welcomed by EU policymakers, who know they are highly unlikely any time soon to acquire any of the tools usually required to run an effective foreign policy.
The EU doesn’t have an army it can send into a shooting war, enough military or political aid to prop up or dispense of governments abroad, or a centralized intelligence service. Commission President Ursula von der Leyen has declared her outfit to be a ‘geopolitical commission’, and is casting about for any means of making that real.
Through the ‘Brussels effect’ whereby European rules and standards are exported via both companies and governments, the EU has indeed won many regulatory battles with the US.
Its cars, chemicals and product safety regulations are more widely adopted round the world than their American counterparts. In the absence of any coherent US offering, bar some varied state-level systems, the General Data Protection Regulation (GDPR) is the closest thing the world has to a single model for data privacy, and variants of it are being adopted by dozens of countries.
The problem is this. Those parts of global economic governance where the US is dominant – particularly the dollar payments system – are highly conducive to projecting US power abroad. The extraterritorial reach of secondary sanctions, plus the widespread reliance of banks and companies worldwide on dollar funding – and hence the American financial system – means that the US can precisely target its influence.
The EU can enforce trade sanctions, but not in such a powerful and discriminatory way, and it will always be outgunned by the US. Donald Trump could in effect force European companies to join in his sanctions on Iran when he pulled out of the nuclear deal, despite EU legislation designed to prevent their businesses being bullied. He can go after the chief financial officer of Huawei for allegedly breaching those sanctions.
By contrast, the widespread adoption of GDPR or data protection regimes inspired by it may give the EU a warm glow of satisfaction, but it cannot be turned into a geopolitical tool in the same way.
Nor, necessarily, does it particularly benefit the EU economy. Europe’s undersized tech sector seems unlikely to unduly benefit from the fact that data protection rules were written in the EU. Indeed, one common criticism of the regulations is that they entrench the power of incumbent tech giants like Google.
There is a similar pattern at work in the adoption of new technologies such as artificial intelligence and the Internet of Things. In that field, the EU and its member states are also facing determined competition from China, which has been pushing its technologies and standards through forums such as the International Telecommunication Union.
The EU has been attempting to write international rules for the use of AI which it hopes to be widely adopted. But again, these are a constraint on the use of new technologies largely developed by others, not the control of innovation.
By contrast, China has created a vast domestic market in technologies like facial recognition and unleashed its own companies on it. The resulting surveillance kit can then be marketed to emerging market governments as part of China’s enduring foreign policy campaign to build up supporters in the developing world.
If it genuinely wants to turn its economic power into geopolitical influence – and it’s not entirely clear what it would do with it if it did – the EU needs to recognize that not all forms of regulatory and trading dominance are the same.
Providing public goods to the world economy is all very well. But unless they are so particular in nature that they project uniquely European values and interests, that makes the EU a supplier of useful plumbing but not a global architect of power.
On the other hand, it could content itself with its position for the moment. It could recognize that not until enough hard power – guns, intelligence, money – is transferred from the member states to the centre, or until the member states start acting collectively, will the EU genuinely become a geopolitical force. Speaking loudly and carrying a stick of foam rubber is rarely a way to gain credibility in international relations.
This article is part of a series of publications and roundtable discussions in the Chatham House Global Trade Policy Forum.