Europe Was Never Meant to Be a ‘Regulatory Superpower’

Over the decades, the European Union has weathered recessions and revolutions, internal fissures and external threats. It has seen the Iron Curtain teeter and fall and watched as the world order shifted from bipolar to unipolar to something else entirely. Through it all, the EU has proved remarkably durable, but threats loom on the horizon. The EU now faces a dizzying array of challenges. To the east, Russia’s grinding invasion of Ukraine strains European budgets, imperils fragile supply chains, and jeopardizes the longevity of the European project. Across the Atlantic, meanwhile, Washington has adopted a challenging stance on a variety of issues, placing mounting pressure on the trans-Atlantic relationship. China’s use of predatory economics threatens the old continent’s export industry and its economic model. And economic stagnation, soaring energy prices, and an ongoing migration crisis have further corroded European cohesion, contributing to widespread dissatisfaction and mounting distrust. These developments have left the EU in a precarious position. While the grouping was once a leading force in the global economy, decades of lax industrial policy and heavy regulations have eroded its influence. As recently as 1980, the 27 EU member states collectively accounted for approximately 34 percent of global GDP. Industrial output remains anemic, while the European tech sector continues to lag well behind foreign competitors, and productivity slows year on year. In response, Brussels has fallen back on familiar logic. Rather than embracing uncertainty, the EU has sought to reassert control over it by turning once again to its vaunted regulatory ecosystem. For many European leaders, the continent’s strength lies not in military might or industrial productivity but in its ability to shape global rules and standards. The bloc has increasingly been described as a “regulatory superpower,” capable of projecting its normative power far beyond its borders. International trade expert Anu Bradford has dubbed this concept the “Brussels Effect,” arguing that regulations such as the General Data Protection Regulation and the EU Artificial Intelligence Act have given the EU outsized influence over international economic standards. Advocates of this vision argue that for countries and companies interested in accessing the continent’s vast and wealthy internal market, adapting to European regulations is a small price to pay. European Commission Vice President Teresa Ribera went so far as to say these rules are “non-negotiable.” But Robert Schuman and the EU’s founding fathers never intended to build a union focused on bringing companies to their knees—rather, they wanted to build one capable of standing up to foreign adversaries. The regulatory approach is outdated, too. Thankfully, the EU has another, even more potent tool in its arsenal: trade. In its earliest incarnation, the European Coal and Steel Community (ECSC), the EU was almost exclusively an economic construct. The ECSC and its successor, the European Economic Community, were built primarily to amplify European economic influence by linking and coordinating the continent’s diverse economies. Individually, member states were relatively inconsequential; as a collective, they were a force to be reckoned with. But as the EU has matured, national leaders deprioritized competitiveness, and the bloc’s economic dynamism has dwindled. Many leading European firms have grown sclerotic with age, resting on historical legacies while foreign counterparts have surged ahead. And despite EU efforts to build a thriving start-up ecosystem, byzantine regulatory regimes and heavy tax burdens have continued to hamper growth. Brussels has lost its edge, and regulations are not the solution. Meanwhile, the United States has abandoned global rules it deems obstacles to its own prosperity. It has replaced multilateral committees with bilateral dealmaking, de facto free trade with a realist-inspired industrial policy. U.S. tech firms have been empowered to act as implements of American power, becoming formidable international actors in their own right. Against this backdrop, the EU’s outdated commitment to red tape and regulations is potentially more of a burden than a boon. According to the International Monetary Fund, red tape in the EU acts as a hidden tax, amounting to 44 percent on goods and up to 110 percent on services. Similarly, a recent report by the Information Technology & Innovation Foundation estimated that EU regulations have cost European businesses about $176 billion annually, equivalent to nearly 1 percent of collective GDP. Former Italian Prime Minister Mario Draghi railed against overzealous regulation in his 2024 report, Organizations and governments do not have to choose between regulation and trade. In the age of AI, Europe’s regulatory skill could be an asset. But European states still have to choose what to prioritize and where to allocate finite political capital. Rather than doubling down on rule-making, Brussels should work to more effectively bring its vast economic resources to bear. Indeed, it can be easy to overlook the EU’s massive economic footprint. Collectively, the bloc’s economy ranks as the world’s Its 27 member states boast a combined population of more than 450 million, accounting for approximately 5.5 percent of the global population. By international standards, EU citizens are exceedingly wealthy, controlling a total household income of some in 2024. This vast and affluent pool of consumers has made the EU an irresistible target for international trade partners. By most metrics, the EU is the world’s largest trade power. Accounting for 16 percent of total world trade in goods and services, the bloc . Brussels currently maintains 45 trade agreements with more than 80 countries and territories from Mercosur to Indonesia. Collectively, these agreements encompass more than 2 billion people and a combined GDP in the tens of trillions of dollars. By some estimates, the EU’s trade network accounts for upwards of 52 percent of global trade. Despite its immense economic importance, the EU has increasingly found itself on the outside looking in, particularly since the 2008 global financial crisis. To remedy this, European leaders have proposed a raft of reforms. A growing contingent has advocated for increased European defense integration, including massive investments in defense manufacturing and interoperability. Some political leaders have argued that investing in the continent’s underdeveloped defense industrial base through an EU Defense Union can not only prepare Europe for conflict but also catalyze investment and create new jobs. This analysis is correct, but it is ultimately a long-term solution to an urgent, short-term problem. Reinvigorating Europe’s defense sector alone will not fix a stagnant economy. The political cost would be exceedingly high, while reactivating factories and building new armed forces could take well over a decade. The truth of the matter is that the EU was never intended to be a defense alliance, as failed negotiations on the subject in the 1950s and 1980s can attest. The EU’s founders believed that by pooling together the industries of their individual countries, they could stand tall against foreign pressure, particularly from the Soviet Union. The European leaders of today should seize that same mentality to become a trade superpower, becoming a source of certainty, fair trade, and investment in an ever more uncertain and fractured world. By signing new trade agreements with major economies in Africa and creating investment vehicles for infrastructure in emerging economies, Europe can become the world’s partner of choice. Importantly, the EU should promulgate a new trade architecture that seeks to a) connect opposing blocs; b) secure critical minerals and needed resources; c) invest in partners’ trade infrastructure; and d) expand trade agreements with existing partners and sign new ones. The EU free trade agreements with India and Mercosur, signed earlier this year, are two excellent steps in this direction. This new strategy, however, should include distinct approaches for exports and imports. The EU is heavily exposed to China for its rare-earth consumption, with Beijing supplying . To reduce this dependence, Brussels should proactively pursue bilateral mineral agreements with resource-rich nations, such as the Philippines, Indonesia, or Mexico. The goal should go beyond importing raw ore to be processed in Europe, to invest in those countries’ refining capacity. By doing so with dozens of mineral-rich countries, the EU could become the main trading house for critical minerals, leveraging a network of free trade agreements without parallel. By doing so, Brussels would develop significant influence in ensuring prices remain stable and advantageous to European interests. The Global Gateway, an EU program seeking to challenge China’s Belt and Road Initiative, is already poised to be the main vehicle for this proposal. To be clear, the EU should avoid any temptation to engage in predatory “resource colonialism.” Instead, this new strategy would treat resource-rich nations as equal partners, channeling investments into their territories to refine minerals there while granting market access in return. On the export side, however, Europe still has great strengths to contribute to the global economy. Brussels would be wise to leverage them. The developing world has a growing need for readily available capital and credit from trustworthy institutions. Africa and Latin America have the highest percentages of unbanked populations in the world. European banks, many of which already have operations in these regions, should be empowered to expand operations, providing the capital that will unlock future prosperity. Through a combination of bilateral financing and capital deals with those countries, the agreement of standards under a new Basel agreement, and the creation of a Savings and Investments Union, the EU can strip away the red tape that currently holds these firms back. Doing so would bolster Europe’s banking sector while cementing its role as a financial powerhouse. The same is true for chemicals, pharmaceutical ingredients, and heavy machinery. All of these industries are led by historic European firms, and they are the base of advanced industry, export capacity, and future prosperity. To maximize the effectiveness of its industrial champions, however, European capitals must first complete the Single Market and allow for the free movement of capital, investments, and banks. Choosing this new path will require a shift in mentality in Brussels. For decades, policymakers have sought power in regulating the economy. Now, they must choose to lead it. Acting as a connector of parties and an economic gravitational pole, the EU can both gain a position of leadership and contribute to stabilizing this brave new world. The plan will also need to be sold to the people of Europe, which won’t be easy as Euroskeptic movements surge in many EU member states. But carrying on the current path will only result in a weaker, less prosperous Europe. Regardless of ideology, European political leaders will have to explain to their voters that their national prosperity depends on Europe’s prosperity. On their own, European states are vulnerable and subject to external pressure. Together, they could be a colossus.