By David Born

The global trade order that underpinned Europe's economic prosperity for decades is under structural pressure. The rules-based multilateral system anchored in institutions such as the WTO is weakening. Great power rivalry between the United States and China is reshaping trade flows, supply chains, and commercial relationships at a pace that leaves little room for complacency. For European companies and policymakers, the central question now is how to respond strategically and with sufficient speed.

When the two largest trading partners become less reliable

For decades, the United States and China served as the primary engines of European export growth. That dynamic is now changing in ways that appear structural rather than cyclical. US trade policy has turned significantly more protectionist, and the data reflect this clearly. EU exports to the US surged ahead of tariff implementation in early 2025, yet the EU goods surplus with the US contracted sharply in the months that followed. Further policy uncertainty makes the US market an increasingly difficult environment for European exporters to navigate with confidence.

China presents a distinct but equally challenging picture. The country has built one of the world's most competitive industrial sectors, supported by substantial state investment and vast manufacturing scale. European companies that once held strong positions in the Chinese market now face intensifying competitive pressure - not only within China but globally, as Chinese manufacturers expand aggressively into international markets. This structural dynamic, sometimes referred to as "China Shock 2.0," reflects a fundamental transformation of China's role in global trade.

Together, these shifts point toward a lasting rebalancing of Europe's trade relationships. Neither superpower is likely to generate the same level of demand for European exports as in the previous era of open globalization.

Middle powers: the overlooked majority in global trade

The response to waning growth from the two superpowers is already visible in Europe's trade data and the strategic opportunity it reveals is larger than most public debate acknowledges. Smaller trading partners, collectively described as "middle powers," are, in aggregate, already the primary driver of EU export growth. Europe's total trade with the rest of the world amounted to more than twice that with the United States and China combined in 2025.

Europe has recognized this and is acting on it. With 41 trade agreements covering 72 countries, the EU is already the world's most active proponent of trade liberalization through bilateral agreements. The EU-India Free Trade Agreement (FTA), concluded in January 2026, and the EU-MERCOSUR agreement are among the most significant recent milestones. Further opportunities remain in Southeast Asia and Africa - regions where structured trade relationships are still largely absent. The strategic logic, as our analysis makes clear, is to bring as many middle powers as possible into a rules-based, FTA-linked framework. For European exporters, the diversification potential is considerable.

Building resilience from within: the single market and services

Alongside the pursuit of new trade partnerships, Europe holds significant levers it can deploy independently. Two stand out: the deepening of the single market and a more deliberate strategic shift toward services exports.

The EU single market has proven to be a meaningful buffer against external trade shocks. Intra-EU goods trade reached EUR 4.03 trillion in 2025 and has historically been more resilient during periods of global disruption. Yet the single market remains far from fully integrated. Internal trade barriers are still substantial and eliminating them would materially strengthen Europe's competitive position.

Equally significant is the structural shift underway in Europe's export profile. Much of the ongoing trade policy debate focuses on goods—tariffs, steel, electric vehicles. But the data point in a different direction. Europe's comparative advantage is increasingly anchored in services. EU services exports generated a record surplus in 2024, and growth is projected to outpace the global average in the near term. Services trade commands substantially higher margins and has historically been less susceptible to geopolitical disruption than goods trade. For European companies navigating a more turbulent global environment, this structural shift is both a strategic asset and a competitive differentiator.

The full publication translates these strategic realities into five concrete recommendations for companies navigating the new trade landscape, covering tariff response, supply chain resilience, service expansion, decision-making speed, and economic embeddedness in Europe. Together, they outline what it means to compete effectively in a world where the old trade order is giving way to something structurally different - and where the ability to adapt quickly will determine lasting competitive advantage.

We would like to thank Peter Vogt and Christian Gschwendtner for co-authoring this study.