Trade and Economic Coercion: Europe’s Market Power in a Weaponised World

The wave of globalisation that began after the Second World War rested on three pillars. The first two were technological: transport costs fell steadily, and advances in information and communication technologies made it possible to coordinate activities across countries. The third pillar was political: the progressive reduction of tariffs, both at the multilateral level (through the GATT negotiation rounds) and bilaterally (through an expanding web of regional agreements such as the European Economic Community).

The third pillar is the decisive one. Technology determines what is possible; politics determines what actually happens. The best container ships and the fastest communication networks do not produce globalisation unless governments choose to open their markets, and keep them open. Globalisation is, ultimately, a political phenomenon.

For several decades, the international political environment was supportive of globalisation. The United States saw an open, rules-based trading system as instrumental to its own economic and strategic interests. Across the Western world, interdependence was regarded as a path to shared prosperity and, just as importantly, to peace.

European integration is perhaps the clearest example: a project built on the idea that countries whose economies are intertwined have much to lose from conflict and much to gain from peaceful cooperation. Starting from its Western backbone, and in response to political developments, the multilateral trading system progressively expanded to include former Soviet countries and emerging economies across the globe. Notably, China joined the WTO in 2001, during the heyday of globalisation.

When Political Support Fades

Over the past four decades, political support for globalization has progressively eroded, in a phenomenon known as the “globalization backlash”. Voters in advanced economies have increasingly supported globalization-skeptic parties and candidates. This has affected the composition of legislatures and executives, leading to a protectionist turn in trade policy. Donald Trump is a case in point.

Part of the explanation lies in globalization itself. Its gains have been large in aggregate, but unevenly distributed. The post-war globalization wave rested on the “embedded liberalism” bargain, which combined trade liberalization with redistribution and social protection at home. The idea was that globalization would bring shared prosperity not only across countries but also within them.

As the losers of globalization were left behind, the credibility of embedded liberalism faded, and voters turned to parties promising protection from global forces. Globalization, as it unfolded, proved not to be politically sustainable. The data reflect this shift. Since the global financial crisis, we have observed a slowdown in globalization, though not a reversal.

At the same time, interdependence has been increasingly weaponised. Tariffs are being used as instruments of pressure, export controls on critical raw materials and technologies have become tools of statecraft, and access to markets is being traded for political concessions. The ties that were supposed to bind countries together in peace are increasingly seen as vulnerabilities, either to be exploited or to be protected against.

Europe’s Market Power

Europe is in a particularly delicate position. It is one of the most open economies in the world; its prosperity and institutions are founded on rules-based cooperation, and it remains one of the largest markets on the planet. Yet it depends on the United States for its security and on China for many critical inputs. Whether Europe ends up at the table or on the menu will depend largely on how it leverages the one asset it undoubtedly possesses: its market power.

The first question we will address in the panel is the direction the EU should take. Should it equip itself with stronger tools against coercion? Should it anchor a network of open, rules-based partnerships with like-minded countries? Or should it focus first on deepening the single market and strengthening its own resilience?

These options are often presented as alternatives, but they are arguably complementary. The real challenge is how to combine them, and in what order.

The second question concerns Europe’s ability to turn market power into bargaining power. Size alone is not enough: it must be matched by coherent decision-making. Foreign direct investment is a telling example. The Commission negotiates with partners on strategic matters, from market access to critical raw materials, while decisions on the approval of foreign investments on security grounds remain largely in the hands of national governments.

When member states compete with one another to attract investment, making individual concessions that undermine a common European negotiating position, Europe’s collective leverage is weakened.

The third question concerns the multilateral trading system. WTO rules still govern most of world trade, and the latest World Trade Report estimates that the difference between strengthened multilateral cooperation and the erosion of the WTO system could reach up to 10 per cent of global GDP by 2050.

But can a system built on reciprocity and non-discrimination survive when its largest members drift away from these principles? And can the WTO help build a renewed globalisation that is more politically sustainable, addressing the domestic tensions generated by economic integration while keeping both the United States and China on board?

Finally, as IEP Bocconi is both a policy institute and a research centre, we will discuss what are the areas where further theoretical and empirical research can best help policymakers navigate these questions.

The lesson of the past decades is that openness cannot be taken for granted. It must be designed and managed so that its benefits are broadly shared and interdependence does not turn into vulnerability. Europe’s challenge is to achieve both goals.