The European Union is now increasingly using trade and investment instruments to advance strategic foreign policy goals. Clara Weinhardt and Ferdi de Ville argue this geoeconomic shift is sidelining developmental priorities and creating friction with developing countries.
In recent years, the EU has increasingly embraced a geoeconomic approach to trade and investment, leveraging economic tools for foreign policy objectives, security and sustainability. The EU has created various new unilateral trade and investment instruments that seek to improve its competitiveness vis-à-vis strategic rivals, address security concerns or facilitate its transition to a green economy.
This shift reflects broader global dynamics, such as intensifying US-China tensions, concerns about the resilience of fragile supply chains and the urgency of climate action. However, this geoeconomic turn is not without consequences. The EU risks alienating the international community by going alone with these “autonomous measures”. Developing countries are disproportionately affected by the new instruments (because many of them depend heavily on exports to the EU for affected products), especially those that prioritise sustainability.
Moving forward, the EU should pay more attention to how its geoeconomic trade shift affects its global role, as new unilateral tools increase tensions between trade and development goals. Paying more attention to the impact of European laws on non-EU countries would be in line with European Commission President Ursula von der Leyen’s political guidelines for the new Commission (2024-2029).
Trade-related sustainability instruments most contested
The EU has introduced three new types of geoeconomic instruments to its trade policy toolbox. The first focuses on competition and seeks to address market distortions to ensure fair conditions for EU businesses. The second follows a security logic and aims to make economic policies conform to security goals. The third targets sustainability and aims to reduce environmental harm linked to trade and investment.
These instruments affect low- and middle-income countries differently, with sustainability-related instruments posing greater conflicts between geoeconomic and development policy goals compared to the other two types. We find that the recent unilateral competition and security instruments we analysed often have only a limited impact on developing countries.
An example of a recent EU autonomous trade instrument related to sustainability that significantly affects developing countries is the Carbon Border Adjustment Mechanism (CBAM). The CBAM is a cornerstone of the EU’s green trade agenda. By imposing a tariff-like price on carbon-intensive imports such as steel, cement and aluminium, it aims to level the playing field for European industries adhering to stricter emissions standards.
Yet, we find that this policy disproportionately affects lower-income nations, where exporters may lack the financial and technological capacity to transition to greener production methods. Mozambique, for instance, risks losing a significant portion of its aluminium export revenue – about one-fifth of its total exports – due to the CBAM’s phased implementation.
Figure 1: Exposure of countries to the EU’s Carbon Border Adjustment Mechanism (CBAM)
Note: For more information, see the authors’ accompanying paper in Politics & Governance.
Similarly, the EU’s Deforestation Regulation bans products linked to deforestation, such as cocoa, coffee and palm oil, from entering the EU market unless they meet strict due diligence requirements. While the regulation seeks to protect global forests and biodiversity, it imposes heavy compliance costs on smallholder farmers in countries like Ghana or Côte d’Ivoire, where agriculture is central to the economy. The absence of differential treatment or financial support mechanisms amplifies these challenges.
Figure 2: Exposure of countries to the EU’s deforestation regulation
Note: For more information, see the authors’ accompanying paper in Politics & Governance.
Friction with the Global South
Geoeconomic competition makes it more difficult than in the past to reconcile the various objectives of EU foreign policy. The new geoeconomic approach recognises more explicitly that trade liberalisation may carry considerable risks and adverse effects on development, the environment and security.
We find that the EU’s geoeconomic turn towards autonomous trade instruments goes hand in hand with relegating development objectives to the background – which clashes with its Treaty obligations to ensure policy coherence for development. In particular, there is growing tension between the EU’s sustainability and its development objectives.
Many nations in the Global South view the EU’s regulations as imposing burdens without sufficient concern for developmental needs or economic realities. Yet, calls for exemptions or financial support, especially for least-developed countries (LDCs), have largely been ignored.
For example, while the European Parliament initially proposed compensating LDCs for losses from the CBAM through decarbonisation funding, this provision was ultimately dropped from the final regulation. This oversight risks alienating partners the EU seeks to engage, especially as it attempts to counterbalance China’s influence in the Global South. The EU’s credibility as a development partner is at stake.
Balancing geoeconomics with development
The EU’s geoeconomic policies highlight the challenges of how to address trade-offs between foreign policy goals. Overemphasising competitiveness or sustainability at the expense of development risks widening global inequality, hindering climate cooperation and weakening strategic partnerships in a multipolar world.
As the European Commission under Ursula von der Leyen navigates global challenges like US-China competition and the climate crisis, balancing strategic autonomy with developmental partnerships will be key. A balanced approach can position the EU as a leader in climate action and trade, without disadvantaging vulnerable economies.
Measures like exemptions, technical support and access to green technology can help low-income countries adapt and offset potential negative economic implications. Moreover, there is a need for better and earlier consultation with potentially affected low-income countries, including through existing contacts with ministers in these countries. Tools such as the International Procurement Instrument, which exempts LDCs, offer an example of more equitable policymaking.
For more information, see the authors’ accompanying paper in Politics & Governance
Note: This article gives the views of the authors, not the position of EUROPP – European Politics and Policy or the London School of Economics. Featured image credit: European Union
