The new normal: Controlled trade

Olivier Babeau is an economist and president of Institut Sapiens. Gregoire Verdeaux is director of Institut Sapiens’ Observatory of International Trade and a former member of Michel Barnier’s European Commission cabinet.
As U.S. President-elect Donald Trump’s new mandate raises more speculation than ever about Washington’s commitment to free trade, rather ironically, the EU appears on the verge of concluding its own trade agreement with Mercosur — the Southern Common Market.
 This, of course, supports the narrative of a widening transatlantic divide. A divide between “red” Americans — opting out of global free trade, resorting to traditional reflexes of isolationism and unilateralism, with the additional rogue twist of Trump at the helm  — and “blue” Europeans, faithfully abiding by their World Trade Organization commitments and belief in a more prosperous world fueled by ever freer trade.
Adding to the irony, France is now the dissenting voice in Europe, sending its new Prime Minister Michel Barnier back to Brussels in a desperate last-minute operation to derail the Mercosur free-trade train, which is being led by none other than his former deputy Sabine Weyand. And if France’s charge doesn’t change much, if anything at all (the track record for doesn’t look great for Paris), it appears the binary logic of Washington vs. Brussels, of red vs. blue, of unilateralism vs. global rules will be sanctified once more.
But our view differs, substantially.
What we observe among developed nations is a gradual but perceptible shift away from uncontrolled free trade, and a move toward the imposition of more controls and obstacles. And in that respect, there isn’t only less of a gap between the U.S. and the EU than one would think, but the existing gap is narrowing as well.
These additional trade controls and measures come from different sources:
Firstly, they’re embedded in trade agreements themselves. Anti-dumping, anti-subsidy and safeguard measures can already be imposed, at least temporarily. And in today’s most controversial case — the EU-Mercosur agreement on agricultural products — additional clauses, like the so-called “mirror clauses,” can also be activated to bring the production conditions of each trading partner to par.
Secondly — and this has become the global economy’s true battleground — each trading block comes with its own standards. In that respect, Europe usually views extraterritoriality as a feature of U.S. policy, but the bloc, too, has de facto imposed its own views in certain areas like data privacy, compelling partner countries to seek data protection adequacy vis-à-vis the EU General Data Protection Regulation. Another such example is the Carbon Border Adjustment Mechanism, already replicated in the U.K. and set to become a concern for the bloc’s trade relations with both the U.S. and China.
And as each trading partner seeks to impact the competitiveness of its rivals by imposing alignment on its own standards of production, we can only expect more “standards wars.”
Thirdly, mechanisms screening foreign direct investment have flourished since the Covid-19 pandemic, and within countries that are part of the Organisation for Economic Co-operation and Development, subjecting such investments to governmental reviews — usually under the disguise of “national security” concerns — has become the rule rather than the exception. The first Trump administration was abundantly criticized for its almost systemic use of such measures, but objectively speaking, “national security” goes a long way to deter foreign investors in many countries, from Japan to Canada — just ask TikTok.
Lastly, it would be a mistake not to consider the proliferation of Western sanctions and measures aimed at countering illicit trade. Western countries have grown increasingly prompt in opting for sanction regimes in lieu of contributing to military operations. And while these measures — from anti-money laundering and tax evasion to import bans on certain products — are designed to target “bad actors,” their proliferation, as well their extension and sometimes overlap, is something to watch out for, as the net goes wide and horizontal measures affect all.
As a result, on the eve of another Trump administration, we personally don’t see America and Europe — including the U.K. — as dramatically opposed in the way they approach post-pandemic international trade. In their respective ways, all have adopted, and keep adopting, more and more control measures, whether or not they’re officially designed as such.
In doing this, the West is drawing logical conclusions from the economic success of emerging economies – chiefly China — and their ability to effectively boost exports through state support, while simultaneously defending access to their own markets and resources — be it through export bans, local ownership rules or restricting capital movements.
Western governments are also implicitly acknowledging the obvious: Multilateralism has so far failed to create the environment the global economy needs. Unable to resolve trade disputes since 2019, the WTO’s paralysis epitomizes the failure of the entire system of international organizations and multilateral agreements proposing, adopting and enforcing rules that ensure free and fair global competition while achieving a few common goals — in particular, the fight against climate change.
Therefore, what could really set the new Trump administration apart from its European partners is this: political will.
Yes, Trump is unapologetic about the imposition of “his” terms and conditions, but if one considers that few of his past administration’s trade decisions have actually been recalled, it appears Americans are openly willing to use these controls as an instrument of economic policy.
Indeed, in a global economy, states must approach trade policy as the continuation of domestic economic policy by other means, whether to achieve consumer protection, fight inflation or pursue industrial policy.
But while Trump’s unequivocal victory is likely to align federal institutions behind his strategy, Europe appears divided and, above all, politically unwilling to embrace this new era of “controlled trade.” As a result, the bloc risks missing the opportunity to articulate what its own economic policy, by virtue of controlled trade, might look like, while the U.S. (and China) forcefully advance theirs.
This is the real transatlantic divide.