The U.S.-EU trade deal shields strategic sectors – GIS Reports

As Brussels caves to the Trump administration’s demands, the new agreement may compel Global Majority countries to reassess their alignments.

Brussels, Belgium, Aug. 21: European Trade Commissioner Maros Sefcovic said that as part of their trade agreement, the EU and U.S. are working on a “metals alliance” to counter the effects of subsidized Chinese production on global markets. © Getty Images

This is part 2 of GIS’s two-report series on the U.S.-EU trade deal. Part 1 is available here.

In August, the United States and the European Union signed a landmark trade agreement. “The Framework on an Agreement on Reciprocal, Fair and Balanced Trade” builds on previous official statements regarding the U.S.-EU trade deal and seeks to strengthen the trade and investment relationship as a first step.

The deal prompted varied reactions across Europe, most notably from Mario Draghi, former European Central Bank president and former Italian prime minister, who issued a stern warning about the bloc’s declining geopolitical relevance. He described the agreement as emblematic of Europe’s failure to translate economic size into global influence, exposing structural flaws and the need for urgent institutional reform.

European Commission President Ursula von der Leyen defended the deal as a pragmatic and necessary compromise, calling it a “good, if not perfect” outcome that averted a potentially devastating trade war. She emphasized that maintaining cohesion with Washington was crucial, especially amid rising authoritarian influence from Moscow and Beijing.

Not all European capitals shared this optimism. Former French Prime Minister Francois Bayrou called the deal a capitulation to U.S. pressure and a “dark day” for European autonomy. German Chancellor Friedrich Merz warned of inflation risks and competitive imbalances. German business groups contended that Brussels had failed to protect key European industries and regulatory standards.

For non-EU countries, the deal’s implications are profound. It signals a growing preference among major powers for bilateral trade agreements over multilateral ones, potentially marginalizing smaller or less developed economies that rely on World Trade Organization (WTO) mechanisms. The deal’s substantial investment commitments and energy contracts could divert capital and trade flows from countries outside the transatlantic corridor, particularly from emerging countries making up the Global Majority.

Strategically, this deal bolsters a Western economic bloc amid increasing geopolitical fragmentation, prompting many non-Western countries to reconsider their alignments in a world increasingly shaped by regional power centers rather than global consensus.

Ring-fencing steel and aluminum

The framework agreement proposes coordinated protection of the U.S. and EU domestic steel and aluminum markets through what EU Trade Commissioner Maros Sefcovic described as a joint “metals alliance.” This alliance aims to mitigate the adverse effects of subsidized overproduction, primarily from China, by establishing tariff rate quotas at unprecedented levels and easing reciprocal trade between Europe and America. However, it may also exclude or restrict access for other third countries.

This deal bolsters a Western economic bloc amid increasing geopolitical fragmentation, prompting many non-Western countries to reconsider their alignments.

Countries in the Global Majority, long integral to international metal supply chains as exporters of raw metals or intermediate goods, now face heightened vulnerability. As the EU and U.S. collaborate to exclude “disruptively cheap” imports, suppliers from regions across Southeast Asia, Latin America, Africa and South Asia may find their traditional markets closed or less accessible. Producers in emerging countries risk being caught between low-priced Chinese overcapacity and the preferential bilateral quotas granted to industries in Europe and America.

This realignment may force nations in the Global Majority into a strategic dilemma: Should they align with the U.S.-EU bloc to maintain market access, or seek alternative markets, perhaps through new regional blocs or Beijing, to sustain their export markets?

Rules of origin

Rules of origin determine whether a product qualifies for preferential treatment under a trade agreement. The trade deal includes a rule to ensure the benefits of the transatlantic trade agreement remain largely within the U.S. and the EU, making it harder for other countries to compete. These “rules of origin” act like barriers, limiting developing nations’ ability to sell their goods in these markets.

This dynamic undermines the inclusiveness of the multilateral trade system. By favoring internal supply chains and largely excluding third-party economies, the pact departs from the open, non-discriminatory trade framework endorsed by the WTO and multilateral trade standards. This segmentation widens economic inequalities and could push developing economies to join alternative trade blocs or adopt more regional or fragmented trade approaches.

U.S.-EU technology convergence

By committing to aligning technology security requirements with those of the U.S. to prevent technology leakage to “destinations of concern,” the framework agreement strengthens transatlantic control over strategic technologies and alters the competitive landscape. In operational terms, the agreement introduces stricter export controls, joint oversight of sensitive sectors such as semiconductors, artificial intelligence, quantum computing and biotechnology, and coordination of licensing systems focused on compliance with U.S.-aligned security standards. For third countries, these measures erect barriers to participation in global high-tech value chains.

Emerging markets often rely on importing advanced inputs and exporting components or assembled products. As the U.S. and EU tighten their standards through shared technology security requirements, exporters from the Global Majority could face higher compliance costs and increased paperwork. This may force these countries to depend on the goodwill or policy differences of other major powers. Such disparities could lead to increased fragmentation in global standards, data governance and technology transfer norms.

Critical minerals trade strategy

The U.S. and EU pledge to coordinate responses to export restrictions on critical minerals by third countries marks a major shift in global resource governance. This could substantially affect opportunities for resource-rich developing economies. By aligning their strategies, Washington and Brussels are forming a collective front to secure access to essential raw materials.

Resource-rich emerging countries may face mounting external pressure to manage how and to whom they export their critical minerals. If the U.S. and EU implement punitive or retaliatory measures, such as sanctions or trade restrictions, against countries that impose export limits, this could deter sovereign decisions to prioritize domestic industrialization over export restrictions.

Furthermore, the absence of multilateral mechanisms for managing strategic resource flows, such as a proposed International Materials Agency, limits the options of developing countries for jointly and transparently protecting their interests. 

More by trade and sanctions expert Bob Savic

Economic security alignment and supply chain resilience

As the U.S. and EU deepen their economic security cooperation through coordinated actions targeting non-market policies (government or institutional interventions), investment screenings, export controls, duty evasion and mutual access to government contracts, they are building a fortified transatlantic economic framework. This not only boosts supply chain resilience and fosters innovation but also effectively excludes participants from third countries.

By harmonizing foreign investment reviews, the U.S.-EU bloc’s proposals for outbound investment screening could limit developing economies’ access to capital from U.S. or EU investors, particularly for ventures in technology, raw materials or dual-use industries. This redirects investment flows that previously supported growth and industrialization.

The framing of “non-market” practices, like state subsidies, as targets of joint U.S.-EU countermeasures also has indirect effects. Governments in the Global Majority that rely on industrial policies, subsidized sectors or significant state-owned enterprises may face suspicion or punitive responses, potentially leading to higher tariffs or sanctions. Even when such policies are domestically justified, they may provoke retaliation or exclusion from procurement tenders and supply partnerships.

Standards for environmental and social governance

The framework agreement’s provisions on the eurozone’s environmental and social governance and corporate social responsibility norms create a de facto carve-out favoring American businesses that lowers their trade costs and enhances competitiveness in EU markets. Meanwhile, companies from the Global Majority face higher compliance costs, administrative burdens and market access barriers. The EU’s carve-out for U.S. producers concerning its deforestation regulation strengthens Washington’s influence over global commodity supply chains and standards.

The deal’s provisions on the Carbon Border Adjustment Mechanism aim to address the White House’s concerns about burdens on small and medium-sized enterprises. By committing to “additional flexibilities” beyond already elevated de minimis thresholds, the EU facilitates easier U.S. exports to Europe under the carbon levy regime. This preferential treatment stands in contrast to the likely tougher consequences for emerging economies, which may lack access to similar regulatory flexibilities and could incur prohibitive costs.

The agreement’s commitment to protecting labor rights and eliminating forced labor in supply chains is ethically positive but also geopolitically charged. The U.S.-EU tandem’s leadership in setting such standards could translate into stricter enforcement rules that disproportionately affect Global Majority suppliers, where labor conditions are often more precarious. Such regulations may become trade barriers if applied unevenly or without adequate capacity-building support.

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