Forget about Trump: Why Europeans should start worrying about trade tensions with emerging economies

Something unusual happened at the 13th World Trade Organisation’s ministerial conference, which concluded in Abu Dhabi in March. For once, China was on the same side as the United States and the European Union on trade topics. This does not signal an ease in tensions between Western economies and Beijing. Instead, American, European, and Chinese negotiators briefly joined forces only to fight a common adversary: India. To say that New Delhi’s positions at the summit were hardline is an understatement. Indian representatives obstructed most key negotiations, including a reform of fishery subsidies; the extension of a moratorium to avoid tariffs on digital services; and the conclusion of a deal to boost foreign direct investment in developing economies. 

India’s official explanation for its stubborn naysaying was seemingly simple – New Delhi does not want to see non-trade issues, from fighting overfishing to facilitating global investment flows, crop up in multilateral trade negotiations. This is odd. In Abu Dhabi, India’s “offer to the world” was hardly a core trade issue: the country sought to promote the adoption of Unified Payments Interface, its homegrown financial mechanism for sending remittances. Leaving negotiator frustration aside, scratching beneath the surface of India’s official talking points paints a worrying picture for Europe’s relations with emerging economies. New Delhi’s determination to stand up for its own interests in Abu Dhabi illustrates rising global resentment towards EU trade policies. Other developing economies, also frustrated with the EU’s approach, may soon follow suit, fuelling the risk of trade wars between Europe and the global south.  

The first major deal that India rejected was a reform of fishery subsidies aimed at preventing overcapacity and, therefore, overfishing. India’s opposition to the agreement partly stemmed from domestic interests (unsurprisingly, Indian fishing firms happen to like subsidies). Yet Indian fishers are far from swamped with state funds, suggesting that New Delhi’s obstruction was not really about supporting its domestic fishing industry. Reading between the lines, India’s stance was probably aimed at signalling dissatisfaction with the EU’s recent adoption of green trade measures, such as tariffs on carbon-intensive imports and trade rules to prevent deforestation. 

India is hardly the only emerging economy to have qualms about using carbon border taxes and other trade measures to fight against climate change. According to many developing economies, the EU is ‘greenwashing’ by adopting protectionist tariffs under an environmental disguise. At Abu Dhabi, Indian negotiators sent a clear message: for the foreseeable future, India will oppose the adoption of multilateral trade measures to protect the environment. For New Delhi such rules are only “bias, discrimination and unfairness,” as trade and the environment are “two separate issues.” Beyond its negative environmental impact, this stance spells trouble for the EU: with green trade measures forming a key part of Brussels’s growing toolkit to fight against climate change, tensions with emerging economies over green trade rules can only grow in coming years.  

India’s second key refusal centred around extending a global moratorium to outlaw tariffs on digital services. Until an eleventh-hour deal was clinched, an ad-hoc coalition made up of India, Indonesia, and South Africa opposed the extension. Reprieve will be short; the new moratorium will last only until 2026 (when the next WTO ministerial summit will take place). Letting the moratorium expire would have huge consequences: calling a friend abroad over Zoom or streaming a movie on Netflix across borders could come with a high price tag for consumers in the form of trade tariffs.  

On digital services, India’s stance at the WTO conference holds a second, inconvenient truth for Europeans: digital services look set to become a new trade battleground in coming years. That trade rows will increasingly be about non-tangible exports is not surprising. Digital services represent around 15 per cent of the global economy, a share that could rise to around a third by 2030. If India or other emerging economies want to retaliate against, say, green trade measures from the EU, threatening to derail digital trade may well be a powerful weapon – Europe (including the United Kingdom) is the world’s biggest exporter of digital services.  

Facing a backlash over green trade rules and fearing the emergence of new trade wars on digital services, the EU may be tempted to follow the obvious strategy of engaging with emerging economies to soothe tensions. Yet India’s third rebuttal in Abu Dhabi holds a final cautionary tale for Europeans. New Delhi rejected the adoption of a global investment deal aimed at boosting direct investment flows through a reduction in red tape. Global welfare gains from this deal could be massive, potentially reaching $1.7 trillion (an amount equivalent to the size of the Australian or South Korean economies). The agreement was approved by 125 WTO members and would mostly benefit developing economies, which typically have more challenging business environments than advanced economies. Yet India – the supposed leading voice of the global south – still chose to oppose the deal, arguing that it was not a trade issue. 

New Delhi’s bizarre stance on the investment deal highlights a third lesson for Europe: developing economies are increasingly fragmenting on trade topics. This is new: until a few years ago, negotiations at the WTO broadly pitted advanced economies against developing ones. This is no longer an applicable framework, as emerging markets are increasingly willing to stand up for their own interests. This is certainly a good thing, but for the EU, this development also means that vague talks of engaging with the global south will not be enough to soothe trade tensions. The takeaway is clear: the EU’s trade strategy towards emerging economies needs to become much more granular and country-specific than it currently is, as buy-in from a single developing economy no longer guarantees agreement from others in multilateral settings. 

In Brussels’s corridors of power, the mood is all about US-proofing policies ahead of a potential return of Donald Trump to the White House in 2025. In such a scenario, trade rows between both sides of the Atlantic appear almost certain. Yet this risk is, so far, only hypothetical. By contrast, India’s stance at the WTO suggests that trade tensions between Europe and emerging economies are almost certain to rise in coming years, with New Delhi’s tough stance in Abu Dhabi only a taster of looming trade battles. Preparing for a potential second Trump term may well be the priority of the day in Brussels, but it should not distract European policymakers from upcoming – and hard to soothe – trade rows with emerging economies.