Global Europe 2.0 – The Economic Potential of New EU Trade Agreements in an Era of US Protectionism

The protectionist trade policy of the second Trump administration poses a significant challenge to the European economy, hitting export-oriented manufacturing particularly hard. Against this backdrop, this study quantifies the economic potential of a new European free trade initiative (“Global Europe 2.0”) centered on new trade agreements with seven key trading partners: the Mercosur countries, India, the United Arab Emirates, Australia, Indonesia, Malaysia, and Thailand (the P7). Despite accounting for 13 percent of global merchandise imports, the P7's share in EU exports has stagnated over recent decades, pointing to untapped potential that new agreements could help unlock. Using the ifo Trade Model, a quantitative general equilibrium model, we simulate two scenarios: a baseline capturing the medium-term effects of current US tariff policy, and a scenario adding new EU–P7 trade agreements. We find that P7 agreements would more than offset the adverse effects of US protectionism, generating a net positive effect on EU economic activity. Depending on agreement depth, EU real GDP rises by 0.18 to 0.43 percent and total exports by 1.3 to 3.4 percent. Gains are broad-based across all 27 member states, and the turnaround is most striking for EU manufacturing.