Protecting imports, revitalizing exports: the rebalancing logic of EU trade policy

Discussion of the EU's economic prospects has long been dominated by a single keyword: the competitiveness gap. The usual narrative chain goes like this—high energy costs, insufficient innovation investment, heavy regulatory burdens, and unfavorable demographics have caused Europe to fall gradually behind the United States and China in competition. The resulting policy conclusion follows naturally: Europe must export more aggressively and seize a larger share of global markets to compensate for weak internal growth momentum.

However, this way of thinking, which treats competitiveness itself as the goal, may be leading Europe astray. Paul Krugman warned as early as 1994 that competitiveness is a dangerous obsession. Improvements in living standards depend primarily on growth in domestic productivity, not on export performance relative to other countries. For the EU, the real constraint has never been "too little export," but rather slow productivity growth and, in recent years, intensifying economic security risks.

If productivity becomes the core proposition, the focus of trade policy must shift. When a country's prosperity derives from improvements in production efficiency, the greatest value of trade lies in—not what we sell, but what we are able to buy. Imports are real acquisition of resources, while exports are merely the means of payment. This logic deserves particular re-examination in the era of global value chains.

Why Imports Are the Real Gain from Trade

Almost all the channels through which trade enhances productivity run through imports. Machinery and equipment, chemicals, key components, energy, and the technology and knowledge embedded in these inputs are all necessary conditions for industrial upgrading. Imports also bring competitive pressure that forces domestic suppliers to improve efficiency. In other words, the quality, cost, and reliability of imports directly affect the production possibility frontier of the entire economy.

From the perspective of economic security, protecting imports means protecting Europe's ability to access these critical elements. So-called "protection of trade" should not mean protecting the specific interests of domestic exporters, nor should it target any trade balance. The real protection is ensuring that import channels remain open, diversified, and contestable—this is precisely the foundation for safeguarding the production system, innovation capacity, and strategic autonomy. In outlining Europe's competitiveness challenges, the Draghi Report clearly states that "improving security and reducing dependence" is directly related to "import dependence from raw materials to advanced technologies," and calls for building a genuine external economic policy through trade agreements, investment, reserves in critical areas, and partnerships.

The Reality of Global Supply Chains: Exports Depend on Imports

Modern manufacturing has long ceased to be an isolated system operating single-handedly. Value-added accounting in international trade shows that many export products themselves contain a large amount of imported intermediate goods and services. A wind turbine produced in Europe may use magnetic materials from China, bearings from South Korea, and control systems from the United States. If the import link is interrupted, export capacity collapses as well. Therefore, safeguarding imports is, in effect, also protecting exports.The macroeconomic shock of import disruption goes far beyond a single industry. Supply-chain bottlenecks propagate along production networks, pushing up costs and prices, and triggering knock-on effects across multiple sectors. The inflation experience since 2021 has shown that supply disruptions are not a local nuisance but a core variable affecting overall price stability and output. By contrast, export losses, while painful, tend to be concentrated in specific industries and regions. For policymakers, protecting imports of key intermediate goods carries greater "systemic protection" significance than abstractly defending total export value.

When does export actually become the priority?

It must be acknowledged that there are exceptions where exports should come first. The most typical case is external financing constraints: when capital inflows dry up and foreign-exchange reserves are limited, a country may be unable to pay for necessary imports or service external debt. In such situations, protecting export earnings is the financial precondition for protecting future imports. This scenario is especially severe for commodity-dependent economies and small open economies, and it is a vulnerability that UNCTAD has long emphasized.

Another exception arises in specific industries where export markets involve high sunk costs. Once a firm exits the market due to a shock, rebuilding customer relationships and market share requires long-term investment. Given this hysteresis effect, maintaining an export presence during a crisis has strategic value. But these exceptions should not blur the basic principle: in most cases, the continuity and diversity of imports are the first-order policy objectives for safeguarding economic security and productivity.

EU policy practice: is it protecting imports?

The EU's trade policy adjustments over the past fifteen years have in fact partly reflected the logic of protecting imports. In the face of the resurgence of global industrial policy, the abuse of tariff instruments, and the weakening of multilateral mechanisms, the EU's response can be summarized in three steps: first, to limit the use of high tariffs as much as possible, avoiding additional costs on necessary imports; second, to promote the diversification of supply sources, reducing dependence on a single country or region; and third, to expand domestic production capacity in the most sensitive strategic areas, thereby reducing the risk of external dependence.

The direction of these measures is highly consistent with the "protecting imports" framework. Restricting tariffs means lowering import costs, diversification enhances the resilience of import channels, and domestic capacity building compensates for the most critical shortcomings. Moreover, the network of trade agreements the EU has actively pursued in recent years is essentially institutional protection for import channels. However, there remains a tendency in policy design that warrants caution. Under the narrative of emphasizing "strategic autonomy," industrial policy in certain areas could slide toward protectionism, substituting a logic of favoring domestic production for the logic of open competition—and this is precisely what would undermine the dual benefits of efficiency and security that imports bring.

Rebalancing: from export orientation to import resilience

The EU needs a rebalancing of its growth model. For a long time, external demand and net exports have played too large a role in Europe's growth, while domestic consumption and investment have been relatively weak. The COVID-19 pandemic and geopolitical conflicts exposed the fragility of this structure: excessive reliance on exports, rather than growth driven by domestic demand, leaves Europe without sufficient buffer when facing global volatility.Rebalancing does not mean abandoning exports. On the contrary, a Europe with strong productivity will naturally be competitive in global markets. The key lies in focusing policy efforts on boosting domestic productivity, deepening the single market, expanding innovation financing, and strengthening import resilience, rather than treating export growth itself as the goal. When European companies can efficiently access the world's best inputs, their export competitiveness will follow naturally.

Today, as globalization enters a new phase, trade policy discussions should move beyond the simple "open versus closed" dichotomy. True openness means actively managing dependencies and ensuring unimpeded access to critical routes and the availability of backup plans. The new interpretation of trade protection is not about shielding specific industries from competition, but about protecting the entire economy from supply chain disruptions. What the EU is experiencing is precisely this process of conceptual transformation—though halting and difficult, the direction has already emerged.

The world economy is shifting from efficiency-first to giving equal weight to security and efficiency, and trade flows are being redrawn. For Europe, future prosperity no longer depends on selling more, but on the ability to access global resources at lower cost and with greater stability. Protecting imports is protecting Europe's place in the world.