Navigating the New Landscape of Global Trade: A Challenging and Costly Journey Ahead
By Rafik Ahmad *
Altered External Economic Regulation
The economy may have once seemed to be leaning towards a universal free trade utopia, but recent developments have turned this notion on its head. Geopolitical conflicts, COVID-19, climate change, and political shifts, including the presidency of Donald Trump for the second time, have dramatically changed the landscape of international trade.
The European Union (EU) took the first steps in recalibrating its trade policy goals several years ago in response to the "America First" policy promoted by the USA and China's "Made in China 2025" program. The concept of strategic autonomy, presented in 2016, emphasizes the need for a resilient European economic order that can withstand the challenges of the new era characterized by growing rivalry.
This new approach is marked by decoupling, de-risking, friend-shoring, resilience, controlling supply chains, and pursuing autonomy. The EU confirmed its dedication to this course in 2021 through the Open Strategic Autonomy (OSA) guidelines, which describe its new trade strategy as "As open as possible and as autonomous as necessary."
The ensuing years have seen a surge in trade policy instruments, including tariffs, export controls, environmental and social standards, and the revival of trade sanctions. Sanctions and embargoes, traditionally used to induce certain behavioral changes in parties, have witnessed unprecedented levels of use since the Russian attack on Ukraine in February 2022.
The tight, temporal timing of sanction escalations and the introduction of new sanction instruments present considerable challenges for businesses. Long-standing certainties and principles in international trade law are increasingly being questioned by these new measures. Examples include the obligation to influence outside-EU-based subsidiaries and joint ventures, mandatory inclusion of re-export restrictions in trade with third countries, even without an apparent Russian connection, and comprehensive notification obligations in case of embargo violations.
The Russian attack on Ukraine has significantly strengthened the tendency of EU sanctions to have extraterritorial effect. While the USA has been criticized by the EU for the extraterritorial effect of its controversial sanctions, this is not the only development. Recently, China has equipped its national export control law with extraterritorial elements, based on US law. In combination with its local law, which can prohibit compliance with foreign sanctions, the situation for European companies navigating between different legal orders is becoming increasingly complex.
The impression is starting to arise that companies, which already bear the majority of the economic burden of trade sanctions, are increasingly being used as a vehicle for the lack of international agreement on enforcing sanctions. The spirit of extraterritorial sanctions seems to have escaped the bottle and is unlikely to be contained again.
In addition to the risk of indirect supplies, questions related to international arbitration and court proceedings in Russia are now in focus. The sale and export of embargoed goods by the EU carries no de minimis threshold, resulting in numerous penalty and fine proceedings in practice. Indirect transactions can also trigger liability, increasing diligence requirements for companies even for transactions with business partners outside Russia or Belarus.
The increasing extraterritorial aspects of EU sanctions further exacerbate the enforcement risk. On the other hand, "over-compliance" can create a civil law recourse and damage compensation risk for companies, which does not simplify the complex situation.
The typical "lifecycle" of such trade sanctions from a company's perspective can be illustrated using the EU sanctions against Russia. Initially, compliance with the restrictions on business activity was the focus, but subsequently, questions arose about withdrawing from the Russian market. Currently, in addition to the risk of indirect supplies, questions related to international arbitration and court proceedings in Russia are in focus.
Handling China in light of Donald Trump's re-election is likely to affect European companies, particularly due to the expected hardening of geopolitical tensions between the USA and China. The USA has imposed comprehensive export controls and sanctions against China, particularly in the form of product- and technology-related controls, listing of companies on sanctions lists, measures against forced labor, and financial restrictions. In contrast, the EU's measures focus primarily on the control of dual-use and military goods, supplemented by specific national controls of some member states and sanctions lists that lag far behind the scope of the USA.
However, the comparison becomes more nuanced when indirect aspects that affect trade between the EU and China are considered. Companies established in the EU must make every effort to ensure that their subsidiaries in China (and other third countries) that they own or control are not involved in activities that undermine the restrictive measures of the Russia and Belarus regulations. Nevertheless, the scope of US restrictions against China compared to the EU is significantly larger, and it is expected to remain so in the future.
As global trade becomes more complex and expensive, service providers such as banks and logistics companies, as well as business partners, will minimize their compliance risks by passing compliance obligations onto their clients. Transparency is increasingly expected, and actors will continue to use their national export controls as a tool to pursue geopolitical interests.
As a result, the world map of international sanctions is unlikely to become more clear-cut in the foreseeable future.
Rafik Ahmad is a Lawyer and Associate Partner at Flick Gocke Schaumburg. He advises companies in the fields of export controls, foreign trade law, and sanctions.
In recent years, the U.S. has intensified export restrictions, particularly against China and Russia. Proposals under “Project 2025” aim to eliminate license exceptions, tighten deemed export rules, and reduce de minimis thresholds for critical technologies to 0%. This raises compliance burdens for multinational firms operating in allied jurisdictions like the EU. Reciprocal tariffs and trade deficits are also a growing concern, as the U.S. seeks to counter foreign non-tariff barriers and wage-suppressing policies. This risks fragmenting global trade norms and slowing services trade growth.
Divergent approaches to China by the EU and the U.S. complicate transatlantic regulatory alignment. China's likely responses to these measures include WTO disputes and targeted trade barriers, exacerbating supply chain disruptions. Small economies face disproportionate strain from tariff reciprocity, while U.S. regulations like tightened fundamental research definitions impose new due diligence costs on academia and tech sectors.
The WTO's authority is strained by unilateral tariff measures and weakened dispute resolution mechanisms. Meanwhile, the rise of "national security" justifications for trade restrictions creates legal ambiguities, challenging traditional interpretations of WTO exceptions like GATT Article XXI.
- The intensification of export restrictions by the U.S., particularly against China and Russia, under Project 2025, is causing increased compliance burdens for multinational firms operating in allied jurisdictions like the EU.
- Recalibrating trade policy requirements in light of the growing geopolitical friction between the U.S. and China is becoming essential for European companies due to the hardening of tensions between the two global powers.
- As sanctions and trade conflicts escalate, there is an unthinkable but confirmed possibility that weather events might further complicate the challenging journey of navigating the new landscape of global trade, given the increased dependence on resilient supply chains and autonomous economic orders.
