EU trade policy in 2026 reflects an increasingly clear combination of selective opening, diversification of partners, and increased use of trade defense tools to protect domestic production.

Reducing supply chain risks

According to an analysis of EU trade policy published on January 7, 2026, the European Union continues to pursue a "de-risking" strategy aimed at reducing dependence on major trading partners, particularly China and the United States. However, these efforts remain hampered as these two partners continue to disrupt EU trade. China remains the primary target of EU trade protection measures, with the EU's trade deficit with China exceeding €300 billion in 2024. China is expected to continue using tools such as export controls on rare earth minerals and chips to exert trade pressure, while the EU is likely to continue resolving disputes through individual price agreements with Chinese companies.

Trade relations between the EU and the United States

Conversely, EU-US trade relations remain fraught with risks despite the joint declaration reached in August 2025. Under this agreement, EU exports to the US are subject to a 15% tariff ceiling, while the EU committed to eliminating tariffs on all US industrial goods and opening tariff quotas on certain agricultural and seafood products. However, the US has expanded the list of goods subject to Section 232 tariffs on steel and aluminum products to 50%, diminishing EU benefits. The EU's implementation of legislative commitments is projected to extend into 2026, while the risk of increased pressure from the US or the introduction of new tariffs remains if the process stalls or the agreement's terms are altered.

Mercosur bloc: A decisive moment in 2026

In an effort to diversify trade relations and reduce dependence on China and the United States, the EU-Mercosur Free Trade Agreement is considered one of the EU's biggest strategic priorities for 2026. However, the signing and ratification process of this agreement faces significant internal political challenges. While the EU may reach a consensus at the ambassadorial level to sign the agreement in a short time, the ratification process within the EU is predicted to be particularly complex and risks dragging on until close to the deadline.

Several member states, particularly Italy, France, and Poland, have expressed deep concern about the agreement's impact on their domestic agricultural sectors, especially given the growing pressure from farming communities. Italy played a key role in delaying the agreement's signing before the 2025 end-of-year holidays, conditioning its support on increased EU financial assistance for farmers. While the country may change its stance after the European Commission committed to accelerating agricultural disbursements, opposition from France and Poland remains a major obstacle, while Ireland has yet to express a clear position.

Even if the agreement is signed, the ratification phase remains fraught with uncertainty. Procedurally, the trade provisions of the agreement only need to be approved by a qualified majority in the EU Council and a majority in the European Parliament, but in practice, political divisions within both institutions could make the process tense and unpredictable. With some MEPs and governments still concerned about agricultural competition, environmental standards, and social impact, the ratification process of the EU–Mercosur agreement risks being protracted and becoming a major test of the EU's trade diversification ambitions by 2026.

India: A short-term agreement is possible.

EU-India trade negotiations are entering their final stages and a result could be reached soon. However, to facilitate the completion of the negotiations, the EU has had to narrow the scope of the agreement, excluding certain areas such as state-owned enterprises, energy, and raw materials. Reaching an agreement remains uncertain, reflecting fundamental differences in the approach to trade negotiations between the EU and Asian economies.

Australia and Southeast Asia: Cautious progress

Negotiations for a trade agreement between the EU and Australia remain stalled, following a failure to reach consensus on market access for agricultural products, particularly beef. While high-level contacts have resumed recently, Australia is no longer a top priority on the EU's trade agenda. With the EU simultaneously pursuing agreements with Mercosur and India, the likelihood of resuming negotiations with Australia is seen as heavily dependent on the extent of concessions from both sides, especially in the agricultural sector. Meanwhile, the EU plans to sign an agreement with Indonesia and push forward negotiations with Thailand, the Philippines, and Malaysia, although these agreements still face lingering risks due to issues of sustainable development and environmental regulations, particularly the EU's anti-deforestation regulations.

Industrial policy: Increased domestic protectionism

Alongside trade diversification, the EU is increasingly emphasizing industrial policy and domestic protection. The European Commission is expected to announce proposals under the Industrial Accelerator Act, prioritizing EU businesses in public procurement and applying domestic content requirements to certain investments. Simultaneously, the EU will focus on finalizing legislation to increase safeguard tariffs on steel to 50% for most trading partners outside the European Economic Area, while drastically reducing duty-free import quotas to 18.3 million tonnes per year. Accordingly, member states need to authorize the European Commission to renegotiate steel quotas on a country-by-country basis within the WTO framework. These regulations are expected to be finalized before June 2026, the date when current steel safeguard measures expire, to avoid a legal vacuum.

Overall outlook

Overall, EU trade policy in 2026 reflects an increasingly clear combination of selective opening, diversification of partners, and increased use of trade defense instruments to protect domestic production. While the EU has ample tools to promote a trade diversification strategy, its success in 2026 will largely depend on its ability to achieve internal consensus and balance economic, political, and social objectives.

Source: Ministry of Industry and Trade

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