Qatar National Bank (QNB) said the shift in European trade policy represents a strategic response to an increasingly fragmented global economy whose direction is hard to predict.

In its weekly report, the bank said the European Union's new trade agreements are a strategic tool for diversifying its trade partnerships away from its two largest trading partners and for opening new markets for its exports, particularly in economies with high growth potential, led by India, the Mercosur bloc and the Association of Southeast Asian Nations (ASEAN), as well as for securing more reliable access to critical raw materials.

The report said the gains from these agreements will accumulate gradually, supporting the European economy's resilience over the medium term.

The bank said the EU's external environment has deteriorated markedly over the past two years, as the reliability of its two largest trading partners has declined at the same time.

The report noted that the new framework for reciprocal, fair and balanced trade between the EU and the United States came into force on July 1, 2026, as one of the main frameworks governing bilateral trade between the two sides. It caps tariffs at 15% on most EU exports, creating a higher structural barrier for European exports to their largest market.

At the same time, it pointed to China's shift from a major source of demand for European products to an increasingly powerful competitor: the EU's goods trade deficit with China reached EUR 359.8 billion in 2025, after its exports to China fell by 6.5% and its imports from China rose by 6.4%.

The report linked these developments to Brussels' drive to expand its network of trade agreements, the broadest move of its kind in decades.

The bank reviewed the trade agreements the EU concluded with the Mercosur bloc, Mexico, Indonesia, India and Australia during 2025 and the first half of 2026, estimating that together they will raise the share of EU external trade covered by free trade agreements to 53.3%, from 46.3% at the end of 2025.

The report noted that the shift in European trade policy has extended to Southeast Asia: in September, the EU and the Philippines reached an important understanding on a free trade agreement that includes liberalizing more than 94% of tariff lines, while negotiations with Thailand and Malaysia are progressing, with the aim of completing all three agreements by 2027.

It said the upcoming agreements, together with the existing ones with Singapore, Vietnam and Indonesia, will allow the EU to build a trade network covering most members of the Association of Southeast Asian Nations (ASEAN), one of the world's fastest-growing regions.

The report discussed three main objectives behind this shift: diversifying trade relations away from major partners whose policies have become increasingly uncertain; finding new sources of external demand and growth opportunities while the European economy remains sluggish; and strengthening economic security by securing stable and reliable supplies of critical raw materials.

On the first objective, it said the new agreements reduce the EU's exposure to its two largest trading partners, whose trade policies are becoming increasingly hard to predict.

It said high US tariffs have weighed on demand, noting that EU exports to the United States fell 30.4% year on year in the first quarter of 2026.

In this context, the report attributed part of this decline to elevated export levels in early 2025, as shipments were accelerated ahead of announced US tariffs.

The QNB report highlighted that China is at the same time redirecting toward Europe exports that have lost their outlet in the US market, noting that its trade surplus with the EU rose by 24% in the first four months of 2026. It argued that concluding more new trade agreements provides a mechanism for hedging against these risks by diversifying sources of external demand and broadening the base of trading partners, limiting exposure to trade-policy shocks and the risks of concentrating trade in a single market.

On the second objective, the report said the new agreements provide additional sources of external demand at a time when European economic growth remains sluggish and its industrial base is under pressure from persistently weak manufacturing performance.

The bank cited the trade agreement with India as an illustration of the potential open to European exports. It provides for largely eliminating tariffs on machinery, which reach up to 44%, and on chemicals, which stand at 22%, while tariffs on European cars will fall gradually from 110% to 10% within an annual quota of 250,000 vehicles. The report said these very sectors have seen European manufacturers, especially German ones, lose market share to Chinese competition.

More broadly, the agreement aims to double EU goods exports to India by 2032, saving around EUR 4 billion a year in tariffs.

The report noted that these gains will accumulate gradually, as the agreement with India is expected to take effect in January 2027, with tariff cuts phased in over several years.

By contrast, the report said the EU–Mercosur agreement, provisionally applied since May 2026, will deliver gains sooner, as it is expected to increase annual EU exports by 39% by 2040.

As for the third objective, the bank said trade agreements have become a pivotal tool for strengthening European economic security, especially with regard to critical raw materials.

The report highlighted the EU's continued heavy dependence on China, from which it imports all of its heavy rare earth elements and about 98% of its rare earth magnets, key inputs for the automotive, renewable energy and defense industries.

It warned that the fragility of supplies of these materials is becoming more pressing as China's suspension of its second wave of export restrictions nears its end on November 10, 2026, noting that trade agreements with resource-rich partners allow the EU to diversify its supply channels.

It said partners that already enjoy preferential trade treatment supply a quarter of the EU's critical raw material imports, with imports from Canada rising 62% in 2025.

It noted that the new agreement with Indonesia, for example, will help broaden these sources and strengthen access to the country's vast reserves of nickel, cobalt, copper and tin.

The report concluded that diversifying supply sources will not end Europe's dependence on China, which controls 90% of global rare earth refining, but it will limit the EU's exposure to the risks of supply disruption and source concentration.