Europe’s challenge and opportunity: building coalitions of the willing

President Donald Trump has launched an all-out attack on the rules-based international order, which most governments regard as the bedrock of peace and prosperity ¹ See the opening remarks by State Secretary-designate Marco Rubio on the occasion of his Senate confirmation hearing, 15 January 2025, https://www.foreign.senate.gov/imo/media/doc/6df93f4b-a83c-89ac-0fac-9b…. . Many governments are appalled by his initiatives ² The Economist, ‘Donald Trump poses a grave threat to others’ sovereignty and freedom, says Chrystia Freeland’, 4 February 2025, https://www.economist.com/by-invitation/2025/02/04/donald-trump-poses-a…. . They still believe in respecting trade rules, in limiting tax competition and in fighting global warming. The European Union, which is governed by such rules, has the potential to organise an effective collective response. To do so, however, it must overcome two obstacles – its size and its internal divisions. 

First, the EU is often a secondary player on the world stage, accounting for just 6 percent of global greenhouse gases emissions and just 11 percent of global equity market capitalisation. On such issues, Europe cannot lead unless it builds a coalition of like-minded partners. Second, the diversity of policy views within the EU, especially in a context of strong foreign influence on countries such as Hungary and Slovakia, hampers agreement on common positions and can result in stalemates.

To overcome these shortcomings, EU countries ready to go ahead should work with non-EU countries to form international partnerships, or ‘coalitions of the willing’. In fields such as trade policy that belong to the EU’s core competence, this implies that EU countries must abide by majority decisions. In other fields, flexibility can be found, giving rise to two-speed integration, as is the case for the Schengen area, the free-travel area that does not include all EU members, but does include several non-EU countries. 

In what follows, we explore how this could work for three issues: climate action, trade and taxation of multinational corporations. (To be clear: building coalitions is only one of the issues facing Europe. It must also address structural weaknesses, which long precede the Trump presidency, as well as determine its collective response to potential US tariffs. We leave those issues aside here ³ But see Grabbe and Zettelmeyer (2025) and García Bercero et al (2024). ).

A climate coalition

Start with efforts to combat climate change, for which the EU sets policy targets through a complex process involving the country leaders, ministerial councils and the European Parliament. Major decisions are taken based on European Commission proposals which, after they have been broadly endorsed by the leaders, are approved both by a qualified majority of member countries and a majority of votes in the European Parliament. This process, known as ‘co-decision’, results in EU decisions that are binding on the member countries. Accordingly, the EU participates in the international negotiations on their behalf. 

Because this governance structure formally ensures European unity, the EU can form alliances with third countries and exert significantly more global influence than it would otherwise enjoy. Especially, the fact that member countries are legally committed to meeting agreed targets and can be fined for missing them gives leverage to the EU level. 

Building on this architecture and on its 2040 emissions reduction targets, the EU could thus negotiate climate partnership agreements with third countries and build a coalition of the willing that would help keep the momentum toward net zero despite the US withdrawal from the Paris Agreement. Potential partners in this coalition include major advanced economies such as Japan, emerging countries such as Brazil and possibly India, but it should involve first and foremost China. Despite being the world’s top emitter of greenhouse gases, China has a major stake in the building of a green economy. It is not yet clear when its own emissions will peak, but at any rate it should happen before 2030. Moreover, China’s resounding success in manufacturing green equipment implies the country has a vested interest in the pursuit of the transition to net zero.

In doing so, the EU should find ways to overcome the curse of such coalitions: as pointed out by William Nordhaus (2015), the larger coalitions are, the stronger is the incentive to leave them and free-ride on the discipline they provide. A straightforward way to avoid this is the use of carbon border taxes on imports from non-members, but this is only partially effective. The solution advocated by Nordhaus is to form climate clubs whose members would levy a tariff on imports from non-participating countries. The problem with this otherwise effective solution is that a tariff based on climate policy – in effect, a penalty – is not legally feasible under currently prevailing World Trade Organisation rules. Given President Trump’s misbehaviour, however, bending these rules should not be excluded.

Maintaining trade rules

The next case is international trade. As the US shifts toward protectionism, the EU has a major card to play. Building on existing trade agreements, it can create yet another coalition of the willing to help reform the global trade architecture. 

EU trade policy is governed by exclusive EU competence, which means that the European Commission negotiates trade agreements on behalf of all EU members, based on negotiating directives issued by trade ministers meeting in the Council of the EU. Once an agreement has been reached, it must be approved by the Council (by qualified majority) and the European Parliament (by simple majority). This decision-making process ensures that, as illustrated by France's inability to block the EU-Mercosur trade deal ⁴ Sophia Khatsenkova, ‘Explainer: Can France block the Mercosur trade agreement?’ Euronews, 2 December 2024, https://www.euronews.com/my-europe/2024/12/02/explainer-can-france-bloc…. , a minority of holdout countries cannot prevent the conclusion of a trade agreement approved by the majority. This governing arrangement provides overall EU effectiveness while preserving the rights of member countries. It has proved instrumental in making Europe a global trade player. In the heyday of multilateralism the EU was, together with the US, Japan and India, part of the informal steering group for global trade negotiations. 

The question for Europe is whether it has the clout to take the initiative and bring together a group of countries willing to salvage what is left of trade multilateralism and define an agenda for its future. This will be demanding, as the existing apparatus of rules amalgamates fundamental principles that must be upheld and provisions that have become ill-suited to a much more heterogeneous global economy. The agenda should thus help sort out the indispensable from the secondary.

A coalition of the willing could comprise the United Kingdom, Japan, Korea, Australia, India, Canada, Mexico and members of the Mercosur and ASEAN blocs. It would thus build on existing regional trade agreements. We suggest that the EU could convene a dedicated summit to discuss issues and define an agenda. Again, a major negotiation with China, recognising the relevance of security considerations, the desire to keep alive certain industries – such as the European automobile industry – and the rules determining when the use of tariffs is justified or not, would be a signal that the EU is not following the US blindly and that much of the world wants to continue to play by reasonable rules.

Tax deal teetering

Finally, take the taxation of multinational companies. After a long discussion process, more than 140 countries and jurisdictions, in effect an already existing coalition of the willing, agreed in October 2021 on a minimum effective tax rate of 15 percent on the profits of multinational firms. More importantly, they agreed on the taxation of extraterritorial profits in the following way. To the extent that the firm did not pay 15 percent in one country, implementing countries could collectively tax the difference between 15 percent of the profit and the tax actually paid in that country, and then pro rate the distribution of the proceeds according to the share of production in each country (more specifically, a mix of the share of capital and the share of employment in each country). The great advantage of this system is that, in contrast to the race to the bottom in which countries cut the tax rate to attract firms, it is self-enforcing. If a jurisdiction does not collect the 15 percent tax, it will be collected by other countries. Better then for jurisdictions to collect it themselves. The race to the bottom becomes a race to the standard. 

To come into being, the agreement must be voted on and approved by national parliaments. So far, more than 40 countries have done so, and many are scheduled to soon do the same. The US departure, announced in January ⁵ The White House, ‘The Organization for Economic Co-operation and Development (OECD) Global Tax Deal (Global Tax Deal)’, 20 January 2025, https://www.whitehouse.gov/presidential-actions/2025/01/the-organizatio…. , is largely symbolic, as Congress has not voted yet to approve the agreement. The absence of the US does not make the agreement irrelevant. Other countries could build this other ‘coalition of the willing’, although they must expect strong US pushback on the issue of taxation of extraterritorial profits. One possibility, to avoid an open conflict with the United States, is to exclude US profits from global profits for purposes of the computation of extra-territorial profits. This would weaken but not destroy the existing agreement. 

The world of the future, at least of the near future, is a world in which the major multilateral institutions may be largely paralysed. This has long been the case for the UN, with the veto power of the five permanent members of the Security Council. It has been the case for some time at the WTO, with the unanimity rules and the blocking of the Appellate Body (Grieger, 2024). It may well be the case for the World Health Organisation, perhaps even for the World Bank and the International Monetary Fund. In that world, progress and cooperation will have to take the form of coalitions of the willing. We have explored three cases and discussed how Europe, hopefully joined by many other countries, could lead by example and thereby help keep multilateralism alive. 

Should Europe follow this route and be joined by others, there will be many problems to solve, from the response to heterogeneity within large coalitions, to enforcement mechanisms and cross-issues linkages. We have just emphasised the positive role the EU can play and outlined a path forward. We are convinced that the rest of the world should not respond only bilaterally to the Trump administration’s initiatives. US leadership was instrumental in building a rules-based system and addressing global problems. As the current administration openly repudiates the global responsibilities taken on by the United States, the world, and especially Europe, cannot afford to stand by.

^{Note: We are grateful to PIIE and Bruegel colleagues for their many insightful comments on an earlier draft.} 

References

García Bercero, I., P.C. Mavroidis and A. Sapir (2024) ‘How the European Union should respond to Trump’s tariffs’, Policy Brief 33/2024, Bruegel, available at https://www.bruegel.org/sites/default/files/2024-12/PB%2033%202024_1.pdf

Grabbe, H. and J. Zettelmeyer (2024) ‘Not yet Trump-proof: an evaluation of the European Commission’s emerging policy platform’, Policy Brief 03/2025, Bruegel, available at https://www.bruegel.org/sites/default/files/2025-01/PB%2003%202025.pdf

Grieger, G. (2024) ‘International trade dispute settlement: World Trade Organisation Appellate Body crisis and the multi-party interim appeal arbitration arrangement’, Briefing, European Parliamentary Research Service, June, available at https://www.europarl.europa.eu/thinktank/en/document/EPRS_BRI(2024)762342 

Nordhaus, W. (2015) ‘Climate Clubs: Overcoming Free-Riding in International Climate Policy’, American Economic Review 105(4): 1339-70, available at https://www.aeaweb.org/articles?id=10.1257/aer.15000001