The geopolitical EU learns to play the hypocritical game

Stay informed with free updates

Simply sign up to the EU trade myFT Digest — delivered directly to your inbox.

Welcome to Trade Secrets. There’s a palpable frisson of excitement around the chancelleries of the world as the World Trade Organization’s ministerial meeting in Abu Dhabi is now only three weeks away. OK, slight exaggeration, but there are some important issues kicking around even if not much progress might be made. I’ll look at them between now and the meeting. Today’s main piece is on the EU showing that getting strategic can mean getting nasty. Charted waters is on falling Chinese export prices.

You say hypocritical, I say geopolitical

It’s always a spectacle when that old showman Viktor Orbán lumbers on to the European stage and does his trolling-the-EU-elites thing. Last week the Hungarian prime minister didn’t disappoint, claiming he was going to veto a €50bn aid package for Ukraine before, as usual, giving way. 

As it happens there’s a long-standing cynical but reasonably stable implicit deal between Orbán and the EU. He harrumphs a lot and makes pro-Putin noises but refrains from sabotaging anything of pivotal importance. In return the EU money that maintains his clientelist regime keeps rolling in, as do the automotive jobs that EU single market membership delivers.

But my Financial Times colleagues discovered that in order to make sure Orbán caved on this occasion, the rest of the bloc was preparing some fairly unpleasant coercive stuff, including threatening to cut off all EU funding to Hungary, risking a run on the forint and hammering investment.

This degree of nastiness suggests that aid to Ukraine is sufficiently strategically important that it’s worth sacrificing principles of co-operation and mutual support among member states. The EU is discovering something I wrote about not long after President Vladimir Putin invaded Ukraine. Being a geopolitical power often involves some sordid dealings and betrayal of principle.

True, the EU is only slowly edging towards being a geopolitical player. It’s playing very little role in the Red Sea, for example. But keeping Ukraine stable is a matter of self-preservation. The EU does not want a permanent war of attrition on its eastern border. Even if Donald Trump doesn’t get elected in November, the US Congress’s reluctance to keep funding Ukraine is throwing the responsibility in Europe’s direction.

Brussels has already been prepared to damage one cherished principle — the integrity of the single market. In May last year the EU imposed a highly unusual ban on imports of cheap Ukrainian grain into five member states while allowing transit to the rest of the bloc, and has recently suggested that safeguards against imports could be made specific to individual member states. The market is supposed to be permanently free and indivisible, but that principle is compromised when it’s a question of letting Ukraine export to the EU without infuriating its immediate neighbours.

Another shining principle, environmental sustainability, also looks a bit tarnished. The “sovereignty fund” which was supposed to spur innovation at an EU level has been slashed beyond recognition and redirected from the green transition to defence.

Now, it’s obviously true that the EU should have focused its attention on building up its defence and strategic capability much earlier and moved way faster since the Ukraine invasion. But the direction of travel now, at least, is clear. Ukraine is a critical if not an existential challenge, and inconvenient European values are being jettisoned to rise to it.

Defending the right to be bullied

Speaking of EU member states, let’s drop in briefly on “economic security”, and the underwhelming plans the EU unveiled a couple of weeks back. The FT reported at the time that concerns about turf wars between the national governments and the European Commission meant that plans for tougher EU-wide policies on export controls and outbound foreign direct investment were scaled back. 

National jealousy over competences regarding issues such as investment and national security isn’t exactly new, and Brussels has had to tread carefully in the past. When the question of allowing Huawei into 5G systems became a live issue, for example, the commission produced a “toolbox” for member states to make the decision rather than trying to write down a set of rules.

One interesting thing though. Even when member state competence appears to be a source of weakness, it still endures. The Netherlands, home of the world-beating chipmaker ASML, has guarded its right to determine export controls on semiconductors even when it’s become pretty clear that it has acceded to US bullying to impose restrictions, pressure that the EU collectively might be more able to resist. ASML’s chief executive even told Politico in a recent interview that he would prefer the EU to be in charge of export controls. And yet still the national fiefdoms retain their powers.

Charted waters

Chinese consumer and export prices are dropping month by month, leading to lots of talk of China exporting deflation. As Robin Wigglesworth from the FT’s Alphaville notes, right now this may not be unwelcome from a macro point of view in the advanced economies, helping bring their inflation rates under control. It might be trouble on the trade diplomacy front though. If China is switching back to encouraging export-led growth, it will risk gluts of electric vehicles and other products ending up on world markets, with more downward pressure on export prices and threatening more tension over trade.

Trade links

A nice piece in the Washington Post on what toy cars tell as about the world economy.

An article in World Politics Review looks at how some Mediterranean countries are benefiting from the constrictions in the Red Sea.

Four years after Brexit happened, some detailed reporting in the FT and in the Guardian looks at how the government’s claims of Brexit benefits stack up. (SPOILER: not very well.)

A research paper from the Blavatnik School of Government at Oxford university looks into questions of economic security and geopolitics.

Some nice words and pictures on how batteries are taking over the world and displacing fossil fuels.

Trade Secrets is edited by Jonathan Moules