According to the EU trade policy analysis released on January 7, 2026, the European Union continues to pursue a “de-risking” strategy aimed at reducing its dependence on major trading partners, particularly China and the United States. However, these efforts continue to face significant challenges, as both partners remain sources of trade disruption for the EU.
China remains the primary target of the EU’s trade defense measures, against the backdrop of the EU’s trade deficit with China exceeding EUR 300 billion in 2024. China is expected to continue using instruments such as export controls on rare earths and semiconductor chips to exert trade pressure, while the EU is likely to continue managing disputes through case-by-case price arrangements with individual Chinese companies.
EU–United States Trade Relations
Conversely, EU–U.S. trade relations remain fraught with risks despite the joint statement reached in August 2025. Under this agreement, EU exports to the United States are subject to a tariff cap of 15%, while the EU committed to eliminating tariffs on all U.S. industrial goods and opening tariff-rate quotas for certain agricultural and seafood products.
However, the United States has expanded the list of derivative products subject to Section 232 tariffs on steel and aluminum, with rates reaching up to 50%, thereby undermining the benefits anticipated by the EU. The implementation of the EU’s legislative commitments is expected to extend into 2026, while the risk of increased pressure or new tariff measures from the United States remains should progress stall or the terms of the agreement be revised.
Mercosur: A Decisive Moment in 2026
As part of its efforts to diversify trade relations and reduce dependence on China and the United States, the EU–Mercosur Free Trade Agreement is regarded as one of the EU’s most important strategic priorities in 2026. Nevertheless, the signing and ratification process faces significant internal political challenges.
While the EU may be able to reach consensus at ambassadorial level to sign the agreement in the near term, the ratification process within the EU is expected to be particularly complex and may extend close to the deadline.
Several Member States—most notably Italy, France, and Poland—have expressed deep concerns about the agreement’s impact on domestic agriculture, especially amid growing pressure from farming communities. Italy previously played a key role in delaying the signing of the agreement ahead of the end-of-year holidays in 2025, conditioning its support on increased EU financial assistance for farmers. While Italy may revise its position following the European Commission’s commitment to accelerate agricultural funding disbursement, opposition from France and Poland remains a major obstacle, and Ireland has yet to clarify its stance.
Even if the agreement is signed, the ratification phase remains highly uncertain. Procedurally, the trade provisions of the agreement require approval by a qualified majority in the EU Council and a simple majority in the European Parliament. In practice, however, political divisions within both institutions could make the process contentious and unpredictable. With ongoing concerns among some lawmakers and governments regarding agricultural competition, environmental standards, and social impacts, the ratification of the EU–Mercosur agreement risks becoming a prolonged process and a major test of the EU’s trade diversification ambitions in 2026.
India: Prospects for a Near-Term Agreement
EU–India trade negotiations are entering their final stage and could yield results in the near future. However, in order to facilitate the conclusion of the talks, the EU has narrowed the scope of the agreement, excluding certain issues such as state-owned enterprises, energy, and raw materials. The outcome remains uncertain, reflecting fundamental differences in trade negotiation approaches between the EU and Asian economies.
Australia and Southeast Asia: Cautious Progress
Negotiations for a trade agreement between the EU and Australia remain stalled after the two sides failed to reach consensus on agricultural market access, particularly for beef products. Although high-level contacts have resumed in recent months, Australia is no longer a top priority on the EU’s trade agenda. As the EU simultaneously pursues agreements with Mercosur and India, the likelihood of resuming negotiations with Australia is considered to depend largely on the degree of concessions made by both sides, especially in the agricultural sector.
Meanwhile, the EU is expected to sign a trade agreement with Indonesia and to advance negotiations with Thailand, the Philippines, and Malaysia. However, these agreements continue to face the risk of prolonged negotiations due to sustainability concerns and environmental regulations, particularly the EU’s anti-deforestation rules.
Industrial Policy: Increased Domestic Protection
Alongside trade diversification efforts, the EU is placing growing emphasis on industrial policy and domestic protection. The European Commission is expected to put forward proposals under the Industrial Accelerator Act, prioritizing EU companies in public procurement and imposing local content requirements on certain investments.
At the same time, the EU will focus on finalizing legislative measures to raise steel safeguard tariffs to 50% for most trading partners outside the European Economic Area, while sharply reducing duty-free import quotas to 18.3 million tonnes per year. Member States will be required to authorize the European Commission to renegotiate country-specific steel quotas within the framework of the WTO. These measures are expected to be finalized before June 2026, when the current steel safeguard mechanism expires, in order to avoid a regulatory gap.
Overall Outlook
Overall, EU trade policy in 2026 reflects an increasingly clear combination of selective market opening, partner diversification, and expanded use of trade defense instruments to protect domestic industries. While the EU has a full range of tools to advance its trade diversification strategy, the degree of success in 2026 will depend largely on its ability to achieve internal consensus and to balance economic, political, and social objectives.
