Summary
Global trade is increasingly shaped by protectionism, geopolitical conflict, and policy uncertainty. However, Europe is only trapped in this environment if we choose to see ourselves that way. This policy brief argues that deeper international cooperation anchored in free trade agreements and supported by export credit agencies - offers a viable strategy for the EU to enhance economic resilience and preserve prosperity.
Protectionism & uncertainty are choking global trade
Global trade conditions have deteriorated markedly in recent years (Klasen et al., 2025). As Figure 1 shows, the number of trade-distorting policy measures has increased substantially – roughly quadrupling from 562 in 2015 to more than 2,500 in 2025.
At the same time, global cooperation is declining, with the number of concluded free trade agreements falling from an average of 10.6 in the period 2010 to 2019 to 6.3 in 2020 to 2024 (Kose & Mulabdic, 2025).
Geopolitical conflict has further disrupted global markets. The Iran war has affected roughly 20 percent of global oil shipments (Allianz Research, 2026), with spillovers to other commodities such as fertilisers and aluminium (The Economist, 2026). These disruptions exacerbate already elevated uncertainty. Joint research by the Austrian Institute of Economic Research and the Kiel Institute shows that trade policy uncertainty in 2025 reduced global trade volumes by an amount equivalent to a nine-percentage-point tariff increase (Felbermayr et al., 2025).
In times of geopolitical conflict, trade agreements are strategic instruments
The European Union (EU) may not control the behaviour of the other players on the geopolitical chessboard - but it can shape the environment in which it operates by building on its own brand: reliability. In this regard, the EU has made remarkable progress. The recently concluded free trade agreements (FTAs) with Mercosur, India and Australia are instruments of resilience. They help the EU reduce one-sided dependencies while at the same time underlining its continued commitment to open and rules-based trade. As illustrated in Figure 2, the EU has more than 40 trade agreements in place, covering trade with over 70 partner countries (European Commission, 2025a).
At their core, FTAs perform a simple but powerful function: They reduce trade costs. Lower tariffs and more closely aligned standards make trade within the agreement more attractive than trade with third countries. This effect extends beyond trade flows. Predictable access to large markets encourages firms to invest domestically - by expanding production capacity or establishing new facilities - thereby strengthening the economic base at home.
The European Commission estimates that the Mercosur agreement could increase EU exports to the region by nearly 40 percent, equivalent to around €50 billion (European Commission, 2025b). Imports from Mercosur are also expected to increase, albeit more moderately. Similarly, EU goods exports to India could potentially double following the conclusion of an agreement (European Commission, 2026b). Research by the ifo Institute suggests that the gains from a combination of FTAs could more than offset trade losses resulting from higher US tariffs (Baur et al., 2026).
Beyond aggregate trade effects, FTAs strengthen resilience through diversification. Agreements with Mercosur, India and Australia help reduce the EU’s dependence on China by making alternative suppliers more competitive. Brazil, for example, holds an estimated 18 percent of global rare earth reserves (Flach et al., 2022), yet remains a relatively small producer. In this context, trade liberalisation can be complemented by untied loan guarantees, which help finance processing and refining projects, thereby supporting Brazilian firms in the development of alternative supply sources.
Export credit agencies turn political strategy into economic reality
The example above illustrates that without financing, diversification remains a headline - not a reality. Export Credit Agencies (ECAs) such as Euler Hermes can reinforce and accelerate the positive effect of FTAs. Over the past five years, Mercosur countries have already accounted for around 7.5 percent of German export credit guarantees, making them the third-largest recipient. India has received close to 3.6 percent.
ECAs have thus evolved from a purely commercial tool to a strategic instrument (Klasen et al., 2024; McCaffrey & Poitiers, 2025), turning political strategy into real economic activity. For Euler Hermes, a key aspect of this strategic approach is the shift from supporting single transactions to building partnerships. We have significantly expanded our international presence and deepened cooperation with a broad range of institutions on the ground — beyond our traditionally strong and long-standing reinsurance network with other ECAs.
Product innovation plays an important role in this approach. The Shopping Line introduced in 2025 is one example of instruments designed to foster long-term cooperation rather than focus on individual transactions. By allowing multiple deliveries to be combined under a single framework, it simplifies financing for importers and exporters alike, facilitates access to Germany’s broad industrial base, and supports deeper and more sustainable integration of German companies into their partners’ supply chains. Since established partnerships are more likely to be deepened over time (Bernard et al., 2018), the instrument helps foster durable commercial relationships that extend beyond single transactions - shifting the focus from short-term deals to long-term cooperation.
Untied loan guarantees also take a partnership perspective. They allow the financing of critical raw-material projects abroad, simultaneously supporting local development and ensuring stable access for German and European firms. When combined with classic export credit guarantees - which equip partner countries with the technology they need - and embedded in broader raw-material partnerships, these instruments contribute to the stabilisation of critical supply chains in Germany while at the same time fostering economic development in partner countries.
The strategic potential of export finance can be leveraged even further. The Global Gateway Investment Hub already coordinates different EU initiatives to strengthen investment in Sub-Saharan Africa, Asia and Latin America. With a focus on infrastructure, it offers developing countries a credible alternative to China’s Belt and Road Initiative - one based on transparency, sustainability, and mutual benefit. A concrete example is the current German initiative supporting Peru’s transition towards a circular economy. Co-financed by the EU and German development cooperation GIZ, GIZ identifies technological needs, the German-Peruvian Chamber of Commerce connects local firms with German suppliers, and Euler Hermes enables Peruvian companies to invest in German technology.
Going forward, deeper integration of ECAs into the EU’s financial toolbox – for instance through an EU wide reinsurance scheme - would further enhance Europe’s capacity to translate strategic priorities into bankable projects and real economic activity. When you combine advice, technology, public and private financing, real impact happens.
From transaction to partnership
Rising protectionism and geopolitical fragmentation remain defining features of the global economy. For EU member states, retreat or confrontation is not a viable strategy. Instead, strengthening alliances through trade agreements and deploying ECAs as strategic instruments can help stabilise trade, diversify risks, and promote shared prosperity. We cannot outplay great powers - but we can out-partner them.
Bibliography
- Allianz Research (2026); Economic outlook 2026-27: The Fog of War
- Baur, Andreas, Lisandra Flach and Xabier Moriana-Armendariz (2026); Global Europe 2.0 – The Economic Potential of New EU Trade Agreements in an Era of US Protectionism; ECONPOL Policy Report 57
- Bernard, Andrew, Esther Boler, Swati Dhingra (2018); Firm-to-firm connections in Colombian imports; World Trade Evolution
- European Commission (2025a); EU trade agreements accelerate EU export growth and support diversification; Press Release 03/11/2025
- European Commission (2025b); Economic analysis of the negotiated outcome of the EU-Mercosur partnership agreement (EMPA); Analysis prepared by the European Commission’s Directorate-General for Trade
- European Commission (2026a); Trade agreements map; accessed on 27/06/2026
- European Commission (2026b); EU and India conclude landmark Free Trade Agreement; Press Release 27/01/2026
- Felbermayr, Gabriel, Alexander Sandkamp, Hendrik Mahlkow, Elisabeth Christen (2025); Transatlantische Kooperation statt Zollkrieg: Szenarien, Optionen, Lösungsansätze; study commissioned by the foundation of family businesses
- Flach, Lisandra, Feodora Teti, Isabella Gourevich, Lisa Scheckenhofer and Leif Grandum (2022); Wie abhängig ist Deutschland von Rohstoffimporten? Eine Analyse für die Produktion von Schlüsseltechnologien; study commissioned by the Chamber of Industry and Commerce for Munich and Upper Bavaria
- Klasen, Andreas, Simone Krummaker, Julia Beck, James Pennington (2024); Navigating geopolitical and trade megatrends: Public export finance in a world of change; Global Policy
- Klasen, Andreas, Vera Hauser, Kuno Schedler, Noah Stanton (2025); Dealing with Changing Obstacles in Trade Promotion; lill Institute for Public Value Policy Brief 25A
- Kose, M. Ayhan, Alen Mulabdic (2025): Global trade’s rollercoaster ride, World Bank Blogs
- McCaffrey, Conor, Niclas Frederic Poitiers (2025); European Export Finance Needs a Reboot; Bruegel Working Paper 13/2025
- The Economist (2026); The Iran war is roiling commodities far beyond oil; 16/03/2026
