Trading tariffs and trade as a geopolitical tool

In an era where tariffs are rising and trade is increasingly used as a geopolitical lever, Friends of Europe recently convened a ‘What The Chief Says’ dialogue to unpack the rapidly shifting dynamics of global trade and the implications of renewed protectionism. The conversation featured Cecilia Malmström, former European Commissioner for Trade and Trustee of Friends of Europe, and Olivia White, McKinsey Global Institute Director and Senior Partner, offering insights on the erosion of multilateralism and Europe’s strategic positioning in an increasingly fragmented global trade landscape.  

The discussion unfolded against the backdrop of a dramatic shift in US trade policy. President Donald Trump’s return to the global stage has brought a new wave of unilateral tariff hikes – reaching levels not seen in a century – and re-established trade as a geopolitical weapon. While much of the focus has been on the economic implications, the roundtable highlighted a broader concern: the weakening of international rules and institutions that have underpinned the global trading system for decades. 

Participants noted that while Europe continues to trade robustly – with 81% of its trade occurring outside the US – the Trump administration’s sweeping tariff hikes pose a serious challenge to rules-based global trade. A key concern was the weakened role of the World Trade Organization (WTO), particularly the paralysis of its dispute settlement system due to US obstruction of appellate body appointments. This has left countries with limited options for resolving trade disputes.  

The fragility of global supply chains was also highlighted, particularly the uneven burden tariffs place on smaller, export-dependent countries such as Lesotho and Cambodia. Meanwhile, global trade flows are shifting rapidly, with ASEAN overtaking Europe as China’s largest trading partner and Latin American economies deepening ties with Asia. 

Looking ahead, discussants stressed the need for Europe to respond with strategic clarity. There was consensus that the EU must balance openness with firmness, resisting protectionism while remaining ready to negotiate – should the US return to a rules-based approach. 

Key policy recommendations emerged from the discussion: 

• Forge a coalition of the willing for multilateral reform: in response to the weakening of the World Trade Organization (WTO) and broader multilateral institutions, the EU should lead in forming a coalition of like-minded countries to update trade rules on digital trade, green standards and services. This plurilateral approach would allow progress even outside formal WTO frameworks and signal Europe’s commitment to open, rule-based trade. 

• Strengthen strategic autonomy through trade diversification and internal market reforms: Europe should accelerate trade diversification by finalising agreements with partners in Latin America, Asia and the CPTPP bloc. 

• Mobilise dormant and external financial assets for European priorities: with 20% of European savings currently invested outside the continent and large amounts of untapped resources like dormant bank accounts, the EU should explore mechanisms to redirect capital toward its own strategic priorities, including defence, sustainability and technological competitiveness. 

Ultimately, participants concluded that while the current turbulence is severe, it also presents an opportunity. For Europe, it is a chance to lead by example in defending and modernising multilateralism and deepening strategic partnerships. 

‘What the Chief Says’ events are informal and off-the-record roundtable debates that offer our members the exclusive opportunity to engage directly with a senior decision-maker from a European institution or government and get to the heart of a specific policy issue. These events are geared to be in tune with the interests of our members and are strategically linked to emerging trends within the EU sphere. Allowing us to identify opportunities and challenges in the European Commission’s agenda, these events discuss the ‘nitty gritty’ of policies affecting Europe in the next years and beyond. 

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