Last week EU leaders agreed to proceed with the “Buy European” policy to protect strategic industries in the wake of rising global competition and overall geopolitical turbulence. The decision came about at a summit held in Belgium with leaders prioritising sectors such as defence, AI, space, quantum, clean technology, and payment systems. The policy will likely materialise in March as per EU Commission president Ursula von de Leyen which includes an action plan to boost competitiveness, simplify regulation, and integrate capital markets whilst reducing energy prices.
What is the context of “Buy only European” and what does it mean?
The “Buy only European” policy is not entirely new to the global trade environment; in fact, it has been in the talks since last year in the aftermath of Trump’s declaration of reciprocal tariffs. The EU has been working towards greater European sovereignty in 2025 through several key decisions which will be briefly explored below. The fundamental objective is to prioritise EU produced goods and services to the consumers of the region with the aim of boosting the regional economy. What is seen at present is a recurring trend of EU systematically reducing reliance on traditional external partners and simultaneously strengthening regional supply chains.
For example, significant emphasis has been placed on regional and national security by limiting non-EU procurement regulations to disable external entities outside the EU from supplying to the defence sector. In the backdrop of AI and high-tech investments, this could prevent cyber-interventions and allow for stronger security in the region if internal innovations can grow rapidly. Another policy was that in June 2025 the EU commission for the first time, imposed an International Procurement Instrument (IPI) as a response to China effectively excluding EU-made medical devices from Chinese government contracts. The IPI measure restricts large Chinese medical contracts in Europe which means EU is explicitly going after high-value businesses through the IPI policy.
At present, the policy can materialise in other means too. According to Von der Leyen, EU will overall simplify regulations for companies by boosting startups and integrate Europe’s fragmented capital markets while cutting energy prices. It is clear that the direction the EU is simultaneously taking is a re-prioritisation of EU public funds, which could impact voter sentiment and confidence too in the long term alongside the economic benefits for the EU. However, this aggressive policy does not come without its push back, German Chancellor Friedrich Merz has cited the need for a less narrow and aggressive measures such as a “Made with Europe” as opposed to France’s proposal of “Made in Europe”. Nordic countries have cited concerns that this policy could add to greater complexity in EU company regulations. In a joint statement, they urge the commission to focus on “real” simplification such as removing trade barriers between EU countries, merging capital markets, and limiting state aid towards clear market failures.
How the EU commission balances such views by their membership remains to be seen, however, it is unlikely to impact the directional change that the EU is taking, i.e., greater European sovereignty and stronger regionalism.
What could this mean for global trade?
There are unequivocable impacts on many players of global trade which could then lead to geopolitical tensions too. It is likely that this push can disproportionately impact global trade where bigger players will have greater leverage during negotiations whereas smaller players can lose more negotiating leverage because EU is anyways closing themselves off.
There is a strong likelihood for a short-term cost for non-EU countries and a possible benefit for them in the long-term. For instance, local content requirements for tech and defence products through policies such as SAFE, has so far only seen big players such as Canada and UK having some leverage during trade deals. Which means that in the short term there can be an inherent disadvantage towards smaller players looking to enter such markets where demand for these products are high. The compounded impact of inaccessibility to a large market such as the EU in the climate of a tech boom can cause interruptions to returns on investment in non-EU states. In the longer term however, if EU strictly follows this policy, by closing themselves off from external players, there can be a lack of innovative options within the EU which can possibly serve as an opportunity to other countries to build up tech sooner and in a larger scale. This can keep EU in a technological silo and increase global competition which can inadvertently dampen the initial aim of the “Buy only European” policy. Regions such as ASEAN and China which is expanding their high-tech production at a high speed can largely benefit and even scale to the lengths of tech giants of Silicon Valley.
All of this is contingent on the extent the EU is willing go in retaining the Buy only Europe strategy especially when they are highly reliant on non-EU countries for their digital landscape, AND how much of a geopolitical and global trade pressure is being built up by US and China. Europe will likely be pressured by their own membership to consider the incentives of balancing protectionist measures and opening their markets, against the backdrop of high-tech and industrial developments globally.
How will Sri Lanka be impacted from this?
Broadly the impact on Sri Lanka does not appear to be direct and significant yet. EU has not specifically targeted consumer sectors that Sri Lanka has integrated itself into such as traditional exports and commercial export products namely, Tea, Rubber, and textiles and other consumer goods which the EU is highly relying on. But if GSP+ is affected through the “Buy only European” policy, this could then directly impact key exports of Sri Lanka to the EU, which therein impacts income growth to the country. So far there has not been clarity on this possibility, the emphasis has been greater on strengthening national security, technology and digital landscape. All of which is largely supplied by the US and China and some other bigger players who will cut the bigger losses.
However, the story on regionalism and stronger ASEAN and China can materialise in Sri Lanka IF the EU strengthens their protectionist policies. This can even strengthen the case for more low-tech manufacturing activity to trickle down to Sri Lanka while ASEAN and China take on high-tech manufacturing. The lack of integration of Sri Lanka in the global markets during such a protectionist backdrop can act as an advantage in the long term. Nonetheless, if Sri Lanka does integrate into global manufacturing in IT, medical services, and electronics, stricter eligibility rules of EU can directly impact how Sri Lanka can do business there.