Germany taking center stage? Explaining policy change in the EU’s trade and investment policies

Against the background of the transformation in the global economic and political order, and the rising power plus unfair trade practices of the People’s Republic of China, the EU introduced a series of important policy changes in its trade and foreign investment-related policies since 2016. Reforms of its trade defence instruments (TDI), a European framework for FDI screening, new instruments such as the foreign subsidy regulation (FSR), and a renewed industrial policy testify to this. In the past, the Federal Republic of Germany opposed protectionist proposals both for ideational reasons – its liberal support for free trade - and for economic reasons, fearing retaliation from China against protectionist European moves. Its trade policy preferences located Germany inside the EU’s free trade coalition, even though it was never the poster child thereof, due its protectionist approach in agricultural trade. Since the middle of the 2010s, however, German governments moved closer to the more protectionist-oriented coalition and initiated or supported a ‘realist’ policy change in the EU’s trade and investment policies. Member States taking the middle ground, such as Germany, found themselves in a pivotal position to shape the outcome of trade policy and investment policy-related legislation. The paper shows how Germany, siding with France, shifted the balance in the Council in favour of a ‘realist’ pro-change coalition. The German government helped to unblock the deadlocked negotiations on the modernization of the TDI, set the agenda for an EU-level legal framework for national investment screening and promoted a more interventionist industrial policy approach. The paper addresses these research questions: What explains the change in Germany’s trade-related policy preferences and to what extent did this preference change prove decisive for the EU-level trade policy changes?