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.

When we look back on Brexit, what will it tell us about Europe? Will it simply be that an insular UK was always different and destined to never fit in? Will it be that the UK's decision to leave revealed deeper problems with the EU? Or will it be that the threat created by the UK's withdrawal united the continent and saved the European project?

The speaker will explore Brexit through the prism of biblical and ancient Greek mythology. She will examine the reasons behind Britain’s decision to leave the EU and imagine a ‘better Europe’ that has learnt the lessons of the past and reconciled the divisions exposed by the Brexit vote. How can the EU reinvent itself and re-engage its citizens? And where does a post-Brexit UK fit?

Attendance at this event is by invitation only. 

The new European Commission has finally started its work this week. In a world increasingly defined by great power competition and deprived of the certainties of a strong transatlantic partnership, this might well be the first commission where foreign and security policy issues will be equally important to internal EU ones.

Amid an escalating Sino-American rivalry, there is a growing realization in Brussels that something has to change in the way the EU thinks and acts internationally.

Charting a more successful path forward will not be easy. Josep Borrell, the EU’s new high representative for foreign affairs and security policy, during his confirmation hearing, offered a hint as to what might be needed to get there: ‘The EU has to learn to use the language of power.”’

What might this mean in practice?

Four issues illustrate some of the key dilemmas ahead for the EU and its new executive.

Hard power

The most revealing of these concerns hard power.

For a union so addicted to the US security guarantee, and so used to the softer approaches of exercising its influence, this was always going to be a difficult discussion. The recent disagreement between Germany and France over the future of NATO gave a taste of how fraught and complex this discussion can be.

Underpinning it are three fundamental questions. If the EU has to enhance its capacity to defend its interests with military power, how (and how quickly) is it to move ahead, how much additional responsibility will that mean and to what degree will this responsibility need to be shouldered autonomously, potentially distancing itself from NATO or Washington? Moving forward with this agenda while balancing the competing interests of member states and preserving the fragile progress already achieved with initiatives such as PESCO will not be easy.

Discussion and debate among member states should not be discouraged, but the new commission has a role to play in ensuring that such discussion is constructive. Distracting talks about an EU army or a nuclear ‘Eurodeterrent’ should be shelved, with the focus as much as possible on acquiring tangible capabilities, getting the defence architecture right, ensuring operational readiness and spending defence budgets smartly.

How to use power

Great powers have traditionally been able to cooperate in certain areas while competing in others. Given their wide reach, powers like the US have generally not allowed disagreement on one issue to interfere with the ability to work together on others.

If the EU aspires to be a more assertive global player, it will need to grow comfortable with this compartmentalization. For example, if Brussels wants to stand up to Beijing regarding human rights, the South China Sea or issues of acquisition of European infrastructure, this should not mean that cooperation on areas such as peacekeeping, arms control or climate change needs to be blocked.

Footing the bill

Ursula von der Leyen, the new commission president, has announced that she wants an increase of 30% for external action in the 2021–27 Multi-annual Financial Framework (the EU budget). But with the Brexit budget gap looming, and little appetite to increase contributions or reduce the funds allocated to costly schemes, like the Common Agricultural Policy, compromises will have to be made for this to happen.

This will be one of the first key tests for the new commission. Power costs money, not just gestures, and therefore specific commitments already made under the Juncker mandate regarding the European Defence Fund or the new Neighbourhood, Development and International Cooperation Instrument need to be guaranteed, if not expanded.

Internal politics

None of these steps are possible if the internal workings of the EU become too dysfunctional. A stronger stance internationally would make the sometime incoherence of internal EU management more of a liability to the bloc’s credibility. For example, how can the EU advocate for the rule of law beyond its borders while some of its own member states violate the same principles? 

And there remains the perpetual question of how much more power member states are willing to cede – if any – to deliver faster and more efficient decision-making. If the bloc’s reflexes – often slow, consensual and risk averse – are out of place with the role of a modern great power, how does the commission envision introducing decision-making mechanisms, like qualified majority voting, in foreign and security policy matters?

Borrell’s résumé shows his extensive experience in handling critical policy dossiers. He is also expected to travel less than his predecessor, being mindful of the even heavier institutional work ahead, not least in working with a more politically fragmented European Council and a more politicized European Parliament.

Ultimately, learning the language of power might mean that the EU finally deals with the basics of international affairs as a coherent and cohesive actor, rather than as an occasional ensemble. This endeavour clearly lacks a fixed path or destination. But the new commission seems to be mindful that the EU will have to find new ways to use power as the world changes around it. In doing so, it should keep in mind that the language of power is best articulated not with words, but with actions.

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.