Global Trade Is Fracturing: Here's Why The EU Needs The Green Deal More Than Ever

(MENAFN- The Conversation) As an environmentally conscious consumer, buying a new phone can be challenging . Today, most chips come from East Asia, assembly happens in China, and tracing the environmental and social impact of production is all but impossible. On top of that, rare-earth elements from China are increasingly used as geopolitical leverage.

Now picture an alternative: a phone made in Europe, following high environmental and social standards, using refurbished and recycled components. It may sound like a dream, but with a shift in trade and industrial policy, it could become reality.

After decades of globalisation and expanding trade, recent shocks have exposed the fragility of global value chains (GVCs). In response, governments and businesses are working to shorten and restructure supply chains to make them more resilient and sustainable.

This is fast becoming paramount, as rising geopolitical tensions are fuelling protectionist sentiment and trade wars. In this emerging panorama, international commerce and our globalised interdependencies can easily be turned against us.

Trump, protectionism and 'resource shuffling'

President Trump's new term is amplifying this weaponisation of trade , pushing firms and governments to reassess their exposure to GVC risks. To reduce dependence and increase resilience, companies are exploring backshoring (bringing production back within national borders), nearshoring (relocating to nearby countries), and friendshoring (shifting to allied nations).

These shifts could not only profoundly reshape GVCs but, if done strategically, also support the transition to a low-carbon circular economy.

Read more: Friend-shoring: what Biden wants to achieve by trading with allies rather than rivals

Funded by the EU's Horizon Programme, our research, TWIN SEEDS , explores whether increasing GVC resilience can also enhance sustainability.

Trade structures are vital to carbon intensity, and past shifts in GVCs have indeed worsened the EU's carbon footprint – for example by relocating production to countries with lower environmental standards. However, nearshoring, friendshoring, or backshoring strategic products could reduce emissions from EU consumption.

However, there is a risk of“resource shuffling”, where suppliers with lower environmental standards simply shift their exports to less regulated markets, limiting the global impact of any change.

Restructuring GVCs to reduce emissions

While the EU's post-crisis emission reductions have been largely driven by making processes more efficient, shifts in EU supply chains have undermined these efforts. Between 1995 and 2008, supplier changes accounted for 23.4% of the EU's carbon footprint growth, and hindered a potential 6% reduction between 2009 and 2018.

However, this could change, as reshoring and nearshoring could align GVC resilience with climate goals. Our research has shown that reshoring five strategic sectors – iron and steel, electric motors and batteries, chips and circuits, antibiotics, and vaccines – could significantly reduce the EU's carbon footprint.

Although these imports account for less than 1% of total trade, restructuring their supply chains could achieve large reductions, especially in iron and steel, where there is potential for a 4.0% drop in industry emissions. While this shift may cause emissions to slightly increase within the EU, particularly in Eastern Europe, the overall impact would be minimal.

In this context, sector-specific strategies matter – backshoring is more effective in reducing carbon emissions of basic metals, while a combination of nearshoring and friendshoring is better for chips, circuits, and electric motors.

What if the EU greensourced?

In other sectors, choosing suppliers with lower carbon emissions, known as“greensourcing”, is another strategy that can significantly cut emissions. Key industries include construction, manufacturing, machinery repair, motor vehicles, and electronics.

While reshoring these supply chains could improve the EU's carbon footprint, emission reductions are often greatest when sourcing from the most sustainable global suppliers. In motor vehicles, for example, shifting towards the cleanest intra-EU suppliers could reduce emissions by 27.7%, while selecting the most sustainable global suppliers could make that figure 42.5%.

Emissions reduction by top 10 industries, individual sectors, % right axis, volume left axis. Authors' own.

However, resource shuffling could undermine the benefits of GVC restructuring. If cleaner production is reserved for the EU market while other countries rely on dirtier suppliers, global emissions could even rise by 0.5%.

The EU's efforts – like the new carbon tariff on imports – must therefore be globally contextualised. Current measures focus primarily on carbon-intensive goods like steel, and while they hold great potential for reductions, other sectors also offer significant opportunities. Expanding the carbon tariff to cover more industries could greatly reduce the EU's carbon footprint.

Circular economy and GVC restructuring: a win-win?

Achieving effective GVC restructuring and lower emissions will require a shift to a more circular economy, where devices and materials are reused and recycled as much as possible.

Strategies like backshoring depend on circular approaches to replacing critical foreign inputs, such as rare-earth elements, that overwhelmingly come from outside the EU. Embracing circular practices can strengthen resilience by giving EU firms greater control over supply chains, and reducing reliance on foreign suppliers and associated vulnerabilities.

Read more: A sustainable, circular economy could counter Trump's tariffs while strengthening international trade

To assess trends and obstacles in the circular economy, we examined policies and practices across sectors in France and Denmark. Common challenges for businesses included high costs, regulatory and logistical hurdles in reverse logistics, and difficulties in determining the composition of pre-used materials. We also found that the need for intermediaries to connect actors across value chains is a critical issue.

While reuse is the most desirable circular approach, it remains costlier and less practical than recycling, which supports business-as-usual practices. Transitioning to reuse requires systemic policy measures, including easing waste flows within the EU market, implementing robust eco-design standards, and introducing policies that incentivise the production of durable and reusable products.

New regulations on eco-design, and their implementation, will be critical to driving these efforts. Investment in EU reconditioning and recycling capacities is also essential if the region is to scale circular business models effectively. While progress is being made, the systemic shifts required remain slow and uncertain.

Towards an EU market in circular products

As well as creating a unified EU market for used, reconditioned, and waste products, expanding cooperation with neighbouring regions – particularly the pan-Euro-Mediterranean area – could enable the necessary economies of scale. These regions offer both geographic and geopolitical advantages.

Addressing cross-border barriers to moving end-of-life products with key trade partners could further strengthen circular supply chains. Such agreements could form part of the 'Clean Trade and Investment Partnerships' to be launched by the new European Commission.

Instead of continuing to chase low labour costs, EU GVC reconfiguration needs to increase resilience and sustainability by favouring low carbon emissions and circularity. While these strategies may be costly today, economies of scale and innovation will drive down costs over time. Moreover, in a world increasingly shaped by weaponised interdependencies, the need to reduce geopolitical risks and vulnerabilities makes these changes a matter of urgency.

Rather than stepping back from the Green Deal , the new Commission must reinforce it. By integrating strong carbon emissions goals, circular economy targets, and low-carbon technology transfers into EU industrial and trade policy, the EU can achieve the critical synergies needed to enhance resilience and combat climate change.

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