Era of Free Trade and Investment Is Over, Canada’s PM Tells APEC Summit

Economic

Summary:

Mark Carney warns Asia-Pacific leaders global economy undergoing profound change, as China’s president mounts defence of free trade

The Canadian prime minister, Mark Carney, has warned that the era of free trade and investment that formed the foundations of the postwar global economy has ended.

In a stark message to Asia-Pacific leaders at the Apec summit in South Korea on Friday, Carney said rules-based open trade no longer worked in a global economy that was undergoing one of its most profound periods of change since the fall of the Berlin Wall in 1989.

“The old world of steady expansion of rules-based liberalised trade and investment, a world on which so much of our nations’ prosperity – very much Canada’s included – is based, that world is gone,” Carney told a business event on the opening day of the summit in the historical town of Gyeongju.

Carney indicated that Canada would edge away from its traditional dependence on trade with the US, saying it aimed to double non-US exports over the next decade.

Later, in the first formal meeting between Canadian and Chinese leaders since 2017, Carney said he looked forward to working more closely with the Chinese leader, Xi Jinping, to “help build a more sustainable, inclusive international system”.

Xi invited Carney to visit China, adding that ties between the two countries had shown signs of recovery after years of tension under Carney’s predecessor, Justin Trudeau. “Recently, with the joint efforts of both sides, China-Canada relations have shown a recovery toward a trend of positive development,” Xi told Carney.

“China is willing to work with Canada to bring China-Canada relations back to the right track.”

Carney responded: “I also welcome the invitation to come to China to further the dialogue and I very much look forward to doing so,” adding that he looked forward to “constructive and pragmatic dialogue”.

His declaration of the demise of “rules-based” free trade came days after Xi and Donald Trump backed away from an all-out trade war – a truce that was greeted with relief by world leaders, but which was also a reminder of deep-seated differences between the leaders of the world’s two biggest economies.

Carney said earlier this month that Canada would resume trade negotiations with the US only “when the Americans are ready” – an apparent reference to Trump’s decision to immediately end “all trade negotiations” over a television advertisement opposing US tariffs that quoted the former US president Ronald Reagan.

The advert, which was paid for by the government of the Canadian province of Ontario, uses excerpts of a 1987 speech in which Reagan said that “trade barriers hurt every American worker”.

Earlier on Friday, Xi mounted a robust defence of free trade, according to the Chinese foreign ministry, in an apparent swipe at Trump’s “America first” protectionism.

“The more turbulent the times, the more we must work together,” Xi said during a closed-door session. “The world is undergoing a period of rapid change, with the international situation becoming increasingly complex and volatile.”

The two-day summit has been eclipsed by Trump’s crucial talks with Xi on Thursday, when they agreed to withdraw their most extreme tariff and export control threats.

Supply chains and free trade continued to dominate discussions among Apec’s 21 members at the summit, with the US represented by the US treasury secretary, Scott Bessent.

While Trump chose to skip the talks after reaching a deal on rare earth minerals, soya beans and tariffs with Xi, the Chinese leader was positioning himself as the champion of free and open trade. Aside from Carney, he met Japan’s new prime minister, Sanae Takaichi, and is expected to hold talks with the South Korean president, Lee Jae-myung, on Saturday.

Carney is reportedly aiming to restart broad engagement with China – Canada’s second-biggest trading parter – after years of tension and amid a rapid deterioration of Canada’s ties with the US since Trump won his second term in the White House.

Under Trudeau, the Chinese government detained and executed Canadian nationals and interfered in federal elections, according to Canada’s security authorities.

US officials defended Trump’s departure from the summit straight after his talks with Xi – a decision critics say demonstrated his lack of engagement with Apec countries, which together account for 40% of the world’s population and 50% of trade.

When asked why Trump had left on the eve of the leaders’ summit, Casey Mace, a senior administration official, said the US’s contribution in Gyeongju had been “very strong and robust”.

Washington’s engagement in the region was in evidence in Malaysia, where the US defence secretary, Pete Hegseth, met his counterparts from China and India on Friday at the start of an Asean defence summit.

In a post on X, Hegseth said he had told his Chinese counterpart, Dong Jun, that the US would “stoutly defend its interests” and maintain the balance of power in the Indo-Pacific. He also voiced concern about Chinese military activities in disputed areas of the South China Sea and around Taiwan.

The US and India signed a 10-year defence cooperation framework that Hegseth hailed as “a cornerstone for regional stability and deterrence”.

Xi’s first encounter with Takaichi was potentially the most awkward of his round of bilateral meetings. Japan’s first female prime minister is hawkish on China’s military buildup in the region and has targeted wealthy Chinese people in calling for a crackdown on foreigners who buy up property and other assets in Japan.

Takaichi and Xi said they wanted to build a “strategic and mutually beneficial relationship”, despite longstanding differences over historical and territorial issues.

“Japan and China share responsibilities for the peace and prosperity of the region,” Takaichi said. “While there are various pending issues and challenges between our countries, I hope we can reduce those and increase dialogue and cooperation.”

Xi reportedly said he wanted to keep communicating with Takaichi to keep bilateral ties “on the right track”.

Takaichi is a historical revisionist who has sought to play down Japanese atrocities in occupied China and other parts of Asia before and during the second world war, and has made pilgrimages to Yasukuni, a shrine in Tokyo that honours Japan’s war dead, including class-A war criminals.

Takaichi, who skipped a visit to Yasukuni shortly before she became prime minister, told parliament last week that Japan would increase defence spending to 2% of GDP by the end of March, two years earlier than planned.

Tokyo and Beijing have yet to resolve several sources of bilateral friction, including Chinese import restrictions on Japanese seafood and agricultural products – imposed after Japan started releasing treated wastewater from the damaged Fukushima Daiichi nuclear power plant in August 2023 – and a long-running territorial dispute over the Senkaku/Diaoyu islands in the East China Sea.

Source: Theguardian

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Adam

Commodity

Oil, in particular, has experienced some of its largest intraday movements since the Twelve-Day War in June. This article summarizes recent developments and then briefly examines the charts of XAUUSD and USOIL.

Although threats of new tariffs on China by the American government contributed to uncertainty and gains for gold earlier this month, these seem to have calmed down somewhat recently. On 22 October, Donald Trump confirmed plans to meet his Chinese counterpart Xi Jinping, at which some degree of compromise seems possible, while exports of rare earth metals have moved out of traders’ focus. Two more cuts by the Fed before the end of the year have been entirely priced in with a 98% probability according to CME FedWatch.

The American government ordered the freezing of all US-based assets of Lukoil and Rosneft this week and threatened secondary sanctions on foreign banks that expedite purchases of oil from these companies. This is a potentially significant move because it could strongly affect supplies of oil to China, India, and other smaller countries, which are primary markets for Russian oil; the shortfall would need to be made up with supplies from elsewhere, likely boosting demand for oil from Gulf countries.

The key releases coming up in the next few weeks are American inflation, currently scheduled for Friday, 24 October, the Fed’s meeting and nearly certain cut on 29 October, and the double NFP on 7 November covering both September and October. The ongoing shutdown of the American government has significantly disrupted the regular release of data and is likely to mean that upcoming figures are at least somewhat less reliable.

Gold Unlikely to Push Back Below $4,000 for Now

The week beginning 20 October has so far been the largest weekly loss for gold in five years, as the focus on trade wars has declined and most other major fundamental factors appear to be priced in. There was significant profit-taking on 17 and, particularly, on 21 October. With the meeting between Donald Trump and Xi Jinping expected to go ahead on 31 October in Korea, the current dispute seems unlikely to escalate again in the meantime, but any unexpected escalation could drive gold higher once more.

The price held above $4,000 on 22 October with a strong, continuing upward reaction, making this round number a possibly practical as well as psychological support. The same day’s long-tailed doji would also suggest less demand for selling and reluctance to push lower. The 20 SMA is also in view as a potential short-term dynamic support.

Now that there’s no longer an overbought signal from either Bollinger Bands or the slow stochastic, there could be more gains back to the record high or possibly higher if fundamentals support. Buying volume has increased enormously in the last several days of trading, but an immediate push above $4,400 might be too aggressive an expectation.

Oil Jumps After New US Sanctions on Russia

New sanctions against Lukoil and Rosneft by the USA pushed oil up recently as traders worried that threatened secondary sanctions on banks working with these companies could disrupt supply to China, India, and other importing countries. While this has alleviated recent concerns about significant oversupply, the medium-term effects are not yet clear.

$54.75-56 seems to be confirmed as an area of support on the weekly chart, with 17-20 October having been the third unsuccessful test. The crossover of the slow stochastic in oversold and a clear break above the 20 SMA might normally be a strong buying signal, but volume doesn’t clearly support the bounce yet.

The 50 SMA from Bands, which is currently being tested, appears to be an important short-term dynamic resistance. Confirmation of more gains might come from a daily close clearly above $62. Beyond that, the 200 SMA, just below $64, is likely to be a strong resistance from which a breakout would probably require a significant uptick in buying volume.

Source: fxempire

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Winkelmann

Political

Forex

Economic

Hundreds of thousands of ultra-Orthodox Israelis, known as the Haredim, gathered in Jerusalem on Thursday for a mass rally against the arrests of yeshiva students accused of evading military service.The rally is described by Israeli media as a 'rare show of unity' between the divided Haredi factions, who are often in opposition regarding politics and state relations. The demonstration, named "Cry of the Torah," was endorsed by nearly all ultra-Orthodox leaders, who instructed followers to attend and maintain order.

Source: Flash90

Only the Jerusalem Faction, led by Rabbi Azriel Auerbach, refused to participate, accusing organizers of failing to demand the full reinstatement of the long-standing Torato Omanuto exemption system that allows Torah students to defer military service.The exemption is central to the ultra-Orthodox Jewish way of life, allowing yeshiva students to dedicate their time solely to the study of the Torah instead of army duty, a principle many Haredim see as vital to preserving their religious identity. Torah study is viewed by the ultra-Orthodox as a form of spiritual service to the nation, equal in importance to military duty.

"After it was not made clear to me that the purpose of the rally is to publicly declare that the ultra-Orthodox community demands the reinstatement of the Torato Omanuto arrangement … I cannot instruct participation in this rally," Auerbach said in a public letter.Organizers said the gathering was not against the draft exemption law itself but against the arrests of students labeled as deserters. "The debate over the law is still ongoing, and it belongs in the Knesset," a source explained. "But following the arrests and persecution against us, it was decided to protest nonetheless."

The event featured no speeches or a central stage. Instead, rabbis stood separately in different locations while crowds recited psalms and prayers."Some will stand on balconies overlooking the streets where the rally is taking place, and others will stay in their cars," one organizer said, adding that coordinating a central platform for such large numbers was "impossible."An official notice instructed women to pray separately, stating that "women of Israel from the city of Jerusalem who wish to take part in the event will gather in a designated area," while others were asked to "join the prayers from wherever they are."

The protest was convened after Lithuanian leaders, Rabbis Dov Landau and Moshe Hillel Hirsch, called for action following the arrest of several yeshiva students. Their decision prompted Shas and Agudat Yisrael leaders to join, forming a unified coordinating committee across factions.

Police prepared for potential disturbances by hardline followers of Rabbi Zvi Friedman, whose group disrupted a Supreme Court hearing a day earlier. "We expect that the police will use full force against them so they don't turn our prayer rally into a violent event," a source warned.A counter-protest was organized nearby by the "Coalition of Service Organizations and Families of Reservists," including bereaved families and wounded soldiers.Prominent ultra-Orthodox leaders have repeatedly urged their followers to ignore military recruitment orders following the Israeli High Court's ruling that yeshiva students must be drafted into military service amid Israel's enlistment crisis in the army.

The legislation was introduced in 2024 amid mounting losses in Gaza, aiming to replenish dwindling manpower as the Israeli army struggled to sustain operations while facing an unprecedented shortage of recruits.

Source: Zero Hedge

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Adam

Stocks

World shares were set for a seventh straight month of gains and the dollar was near a 3-month high on Friday after Amazon and Apple's earnings reinforced global tech optimism and the hope that massive AI spending will ultimately bolster growth.

European stocks started modestly lower ahead of euro zone inflation data later and after the European Central Bank on Thursday had further dampened talk of another euro zone interest rate cut any time soon.

Nasdaq futures jumped 1.1% and S&P 500 futures gained 0.6%, though, after forecast-busting Amazon earnings (AMZN.O), sent its shares up more than 11% in pre-market trading and a prediction of bumper iPhone sales sent Apple's (AAPL.O) up over 2%.

That offset overnight tumbles in Meta (META.O) and Microsoft (MSFT.O) amid worries about their surging AI spending. Six of the "Magnificent Seven" U.S. tech megacaps have now reported, with Nvidia - which has just become the world's first $5 trillion company - due to report in three weeks' time.

In Asia, Japan's Nikkei (.N225) had rallied over 2%, boosting its weekly and monthly gains to 6% and 16.4%, respectively. That was the largest monthly rise since 1990, turbocharged by hopes for aggressive fiscal stimulus under new Prime Minister Sanae Takaichi.

This week has also seen the Bank of Japan hold interest rates steady despite many economists predicting a hike.

Chinese blue chips (.CSI300) and Hong Kong's Hang Seng (.HSI) both skidded roughly 1.5% though after data showed China's factory activity contracted at the fastest pace in six months in October.

Investors also locked in gains after a trade truce reached by U.S. President Donald Trump and Chinese President Xi Jinping, which will lead to reduced U.S. tariffs on imports of Chinese goods and continued rare earth exports from China.

World shares head for 7th month of gains; dollar near 3-month high_1

Global stock market performance since US election in Nov 2024

SUBTLE SHIFTS

This week, major central bank meetings have delivered decisions that have subtly shifted expectations. The biggest surprise came from Federal Reserve Chair Jerome Powell who pushed back against the market's sanguine view about a rate cut in December.

Both Treasuries and European government bonds were steady on Friday, but were set for weekly losses.

Two-year Treasury yields were flat at 3.6085%, having risen 12 basis points this week already, while the 10-year yield was steady at 4.0969% and up 10 bps for the week.

Germany's 10-year Bund yields , the euro area's benchmark, were up 1.5 basis points on the day at 2.65% and set for a weekly rise of 2.5 bps.

The rise in yields offered support to the U.S. dollar (.DXY) , which was holding near three-month highs at 99.5 against its major peers, although resistance seems heavy at 99.564 and 100.25.

The euro was flat at $1.1569 after the ECB kept its rates at 2% for the third meeting in a row and sounded moderately more positive on growth prospects.

The central bank also published a survey on Friday showing euro zone bloc firms are seeing a slight improvement in business conditions and that investment into sectors like artificial intelligence is booming.

"What the data this week suggests is that maybe we have got something fundamentally wrong about the impact of trade tariffs," Morgan Stanley's Chief Europe Economist Jens Eisenschmidt said, also highlighting the boost from AI.

"It doesn't make me revise anything dramatically, but it makes me think."

In the commodities markets, oil prices fell and were headed for a third straight monthly fall as a stronger dollar capped gains and rising supply from major producers offset new Western sanctions on Russian exports.

Brent crude futures slipped 0.9% to $64.55 a barrel, while U.S. West Texas Intermediate crude was at $60.10, down 0.8%.

Spot gold prices retraced some of the overnight gains and were down 0.3% to $4,008 per ounce. They were down 2.5% for the week and well below the record high of $4,381 hit just last week.

Source: reuters

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Warren Takunda

Economic

Three-digit tariffs are off the table, but import duties on each other are higher than in January.

Rare earth materials will flow more smoothly, but China has put in place an export permitting regime that it can tighten or loosen as needed.

Port fees will go away, but only for one year.

And Beijing is again buying U.S. soybeans after it had abruptly cut off American farmers.

After months of posturing, arguing and threatening, U.S. President Donald Trump and Chinese leader Xi Jinping have essentially turned back the clock. While the meeting between the two leaders was hailed by Trump as a “roaring success,” the agreement that came out of it may only serve to undo some of the damages Trump inflicted with his trade war upon his return to the White House.

“It is hard to see what major gains the U.S. has made in the bilateral relationship relative to where things stood before Trump took office,” said Eswar Prasad, an economist at Cornell University.

On the Senate floor, Minority Leader Chuck Schumer on Thursday denounced the deal out of South Korea as leaving the U.S. as “no better off.”

“If anything, things are worse: Prices have gone up and China has agreed to nothing of substance that will improve trade between our nations,” the Democrat senator said, adding that Trump “started a trade war, created a giant mess for businesses, consumers, and soybean farmers, and then he celebrates for trying to clean up the very mess he created in the first place.”

Nevertheless, the deal has injected a degree of stability, giving the world’s two largest economies — as well as the rest of the world — time and room to readjust.

Washington and Beijing still need to finalize their agreements, a process that always has the potential for fresh disputes. But for now, Xi appears interested in moving past the latest tensions.

In an official statement, Xi referred to “recent twists and turns” that “offered some lessons for both sides.” He said they should be “focusing on the benefits of cooperation rather than falling into a vicious cycle of mutual retaliation.”

Both sides reduce tariffs, resume soybean sales to China

Trump fired the first shot in the trade war in February when he imposed an additional 10% tariff on Chinese goods over the allegation that Beijing failed to stem the flow of chemicals used to make fentanyl. That soared to as much as 145% after China retaliated, but Trump walked it back following market meltdowns.

The two sides in May slashed their massive tariffs to 10% on each other, while Washington retained the 20% fentanyl-related tariff, and China its retaliatory tariffs of 10% or 15% on U.S. farm goods.

Now, Trump said he has removed one 10% fentanyl tariff in exchange for Beijing’s cooperation in fighting the illicit drug.

U.S. Secretary of Agriculture Brooke Rollins said China would also withdraw the retaliatory tariffs on U.S. agricultural products. A spokesperson for the Chinese Ministry of Commerce said Beijing would “adjust accordingly” its countermeasures without giving details.

In addition, China has agreed to buy 12 million metric tons of U.S. beans through January, and will buy at least 25 million metric tons annually for next three years, Rollins said on Thursday.

That compares to China buying 17 million metric tons of U.S. soybeans in the first eight months of this year but importing zero in September. In 2024, China bought 22 million metric tons of U.S. soybeans, according to state media.

Although China did not confirm the details of the latest soybean deal, the spokesperson for the Chinese commerce ministry said the two sides have reached “consensus” to expand agricultural trade.

One-year truce on export controls and port fees

In April, China used its monopoly power in the processing of critical minerals to institute a permitting requirement for the export of several rare earth elements. On October 9, Beijing expanded the export rules, apparently in response to the U.S. decision to extend export controls to businesses affiliated with already-blacklisted foreign companies.

Furious, Trump threatened to impose a new 100% tariff on China, but the two sides managed to cool down in time for Trump to meet Xi in South Korea.

Beijing on Thursday said it would pause for a year the rare earth export rules from October to “conduct research to refine specific plans,” while the U.S. will suspend its affiliate rule for one year.

The delay by Beijing “provides just enough time for the United States to accelerate investment in capabilities and innovation for rare earths and permanent magnets,” said Wade Senti, president of the U.S. permanent magnet company AML. “This needs to be on warp speed and at a scale never seen before since the COVID-19 response,” he said.

Another fresh thorn was the U.S. introduction of port fees in October targeting China-linked vessels, as part of a plan to restore America’s shipbuilding capabilitie s. Beijing answered with countermeasures against the U.S.

The port fees on each other are not removed but will be suspended for one year, the Chinese commerce ministry said.

The future is still uncertain

Whether Trump accepts a return to the status quo or pushes to address fundamental issues that have persisted for years between the U.S. and China remains unclear. Nothing about Thursday’s meeting — the first between Trump and Xi in six years — affects Chinese manufacturing dominance that Trump has blamed for the loss of American blue collar jobs.

Sean Stein, president of the U.S.-China Business Council, called the latest developments “very encouraging” and added: “We hope that future negotiations will address long-standing market access barriers, help level the playing field for U.S. companies, and bring long-term predictability to the bilateral trade relationship.”

There are more opportunities on the horizon to keep working on these challenges. Trump said he will go to China in April and Xi will visit the U.S. after that.

If Trump isn’t successful, this period could be remembered for a lot of sound and fury but no change in the basic trajectory of China’s ascendant economy.

“Generally, Trump grows impatient with anything beyond the immediate, and it is the Chinese that play for longer term advantage,” said Kurt Campbell, a former deputy secretary of state in the Biden administration and now chairman of The Asia Group.

Source: AP

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Adam

Commodity

Oil prices were heading for a third consecutive monthly decline, slipping on Friday due to a stronger U.S. dollar and weak China data as well as rising supply from major producers globally.

Brent crude futures were down 38 cents, or 0.6%, at $64.62 a barrel by 1008 GMT, while U.S. West Texas Intermediate crude was at $60.19 a barrel, down 38 cents, or 0.6%.

The U.S. dollar was near three-month highs against its major peers, making purchases of dollar-denominated commodities such as oil more expensive.

Meanwhile, sources told Reuters that Saudi Arabia, the world's biggest oil exporter, may reduce its December crude price for Asian buyers to multi-month lows due to ample supplies, sources said, sounding a bearish note.

Oil also slipped after an official survey showed China's factory activity shrank for a seventh month in October.

Both Brent and WTI are set to fall around 3.5% in October with the Organization of the Petroleum Exporting Countries and major non-OPEC producers ramping up output to gain market share.

More supply will also cushion the impact of Western sanctions disrupting Russian oil exports to its top buyers China and India.

OPEC+ is leaning towards a modest output boost in December, people familiar with the talks said ahead of the group's meeting on Sunday.

The eight OPEC+ members have boosted output targets by more than 2.7 million barrels per day - or about 2.5% of global supply - through a series of monthly increases.

Meanwhile, crude exports from top exporter Saudi Arabia hit a six-month high of 6.407 million bpd in August, data from the Joint Organizations Data Initiative showed.

A U.S. Energy Information Administration report also showed record production of 13.6 million bpd last week.

U.S. President Donald Trump said on Thursday that China has agreed to begin the process of purchasing U.S. energy, adding that a very large-scale transaction may take place involving the purchase of oil and gas from Alaska.

However, analysts remained sceptical as to whether the U.S.-China trade deal will boost Chinese demand for U.S. energy.

Source: reuters

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Warren Takunda

Economic

As Brussels pushes ahead with a new wave of enlargement, the numbers behind Europe’s trade with its candidate countries reveal a story of dependence, asymmetry, but also a large, untapped potential.

The official EU candidates are Albania, Bosnia and Herzegovina, Moldova, Montenegro, North Macedonia, Serbia, Turkey, and Ukraine. Kosovo is treated as a potential candidate.

Together, they cover a diverse sweep of geography from long Adriatic coastlines to lush forests and some of Europe’s most productive farmland — also including some of Europe's youngest populations.

But while trade flows between the bloc and future members are booming, the relationship remains unequal, with more EU-produced goods finding a market than those stemming from potential member states.

A relationship measured in billions

According to the European Commission’s 2025 Western Balkans trade factsheet, total trade in goods between the EU and the six Western Balkan partners reached €83.6 billion in 2024, up 28.6% since 2021.

Exports from the EU to the region stood at €49.06bn, while imports from the Western Balkans came to €34.52bn, leaving Brussels with a €14.54bn trade surplus.

The EU’s dominance as a market is overwhelming. It accounts for around 62% of all Western Balkan trade, whereas the region represents barely 1.7% of the EU’s external trade. Trade Imbalance: How Do EU Membership Contenders Stack Up Against the Bloc?_1

Trade Imbalance: How Do EU Membership Contenders Stack Up Against the Bloc?_1

Import and export values between the Western Balkan countries and the EU over the years Source: Eurostat

For Serbia, Bosnia and Herzegovina, and Albania, between two-thirds and three-quarters of all exports go to EU countries.

"All (candidate) countries, with the curious exception of North Macedonia, have persistent trade deficits with the EU, meaning they import more from the EU than they export there," explained Branimir Jovanović, an expert with The Vienna Institute for International Economic Studies (WIIW).

"These are economies with small productive sectors. They do not produce enough of what they need, so they have to import, and they also do not produce enough to export," Jovanović continued.

Over the past decade, North Macedonia has become a production base for components that go straight into EU industry that qualify for preferential access to the EU market under the Stabilisation and Association framework (SAA).

The result is that North Macedonia can sell a relatively high share of what it makes directly into the EU without being blocked by technical standards.

This is very different from, say, Albania, which leans more on raw materials and low-value textiles, or Montenegro, which is tourism-heavy and import-dependent in goods.

It is also different from Bosnia and Herzegovina and Serbia, which still import a lot of higher-value machinery from the EU and then export a more mixed, lower-value basket back.

Ukraine and Moldova import high-value EU machinery, vehicles and industrial equipment, while exporting mainly lower-margin goods. In essence, they supply raw materials and basic products, and the EU supplies the technology to produce them. Trade Imbalance: How Do EU Membership Contenders Stack Up Against the Bloc?_2

Trade Imbalance: How Do EU Membership Contenders Stack Up Against the Bloc?_2

Barriers to trade

The Western Balkans trade with the EU under SAAs, which gradually remove tariffs and align national laws with EU rules as part of the formal accession process. By contrast, Ukraine and Moldova operate under Deep and Comprehensive Free Trade Areas (DCFTAs), broader deals that open large parts of the EU single market in exchange for adopting much of the EU’s regulatory framework.

In essence, SAAs are a pathway to membership, while DCFTAs offer deep EU market integration without full membership. This distinction has, however, become blurred — with Brussels indicating that it believes in full membership for Ukraine and Moldova after the full-scale invasion of Ukraine in 2022.

"Countries exporting to the EU face many barriers aside from tariffs. Economists call these technical barriers to trade, such as phytosanitary standards," Jovanović explained.

So even if they produce something that there is a demand for in the EU, it never reaches those markets because these companies might not have the necessary certificates.

"So, although unemployment has decreased, there is no real progress in development. There is also a real risk of a middle-income trap, in the sense that these economies remain assembly-line economies, with low wages and limited technological development and innovation."

The same debate now extends to Ukraine, which formally opened EU accession talks in 2024. Despite the war, trade between the EU and Ukraine has surged. Eurostat data shows the bloc exported €42.8bn worth of goods to Ukraine in 2024 and imported €24.5bn, yielding a €18.3bn surplus for the EU.

The composition of that trade has shifted dramatically since the Russian invasion. Agricultural commodities still dominate Ukrainian exports such but the EU has become its conduit for reconstruction materials and machinery.

Neighbouring Moldova, another candidate country since 2023, shows similar patterns. The EU is Moldova’s biggest trading partner, accounting for 54% of its total trade in goods in 2024. Some 65.6% of Moldovan exports head to the EU.

Trade turnover reached about €7.5bn last year, with EU exports to Moldova amounting to €5.1bn and imports to €2.4bn.

EU standards, a distant dream?

The Western Balkans have made solid progress since the early 2000s, but full convergence with the European Union remains a distant goal, warned the OECD’s Economic Convergence Scoreboard for 2025.

The six economies have more than doubled their output in two decades — yet the region still only reaches about 40% of the EU average. At current growth rates, full convergence won't arrive until 2074. Trade Imbalance: How Do EU Membership Contenders Stack Up Against the Bloc?_3

Trade Imbalance: How Do EU Membership Contenders Stack Up Against the Bloc?_3

The region’s output per person (in purchasing-power parity terms) has more than doubled in 20 years, showing real improvement in productivity, investment, and living standards.

That means the Western Balkans are closing the gap, but painfully slowly, and the strong growth rates are offset by the much higher productivity and capital stock inside the EU.

Growth, on its own, is not enough for convergence. The Western Balkans need qualitatively different growth which is driven by innovation, skills, and higher-value industries.

Infrastructure and productivity are the region's weakest links.

According to the OECD report: "The insufficient quality and coverage of core public transport infrastructure can be a significant obstacle to higher economic growth...as inadequate transport networks can severely constrain the connectivity of producers and consumers to global and regional markets."

With regard to Ukraine, its economy has adapted after a historic shock, but the damage is staggering. Much of the population has been displaced and large swathes of infrastructure have been destroyed.

Output fell –28.8% in 2022 and rebounded +5.5% in 2023. Public finances are being stretched to the limit by defence needs, hindering convergence with EU member states. Trade Imbalance: How Do EU Membership Contenders Stack Up Against the Bloc?_4

Trade Imbalance: How Do EU Membership Contenders Stack Up Against the Bloc?_4

Foreign investment: Friend or foe?

Foreign direct investment (FDI) brings factories and jobs to candidate countries, as well as building stronger links with existing EU member states. Even so, Jovanović argued that this has not led to "structural transformation" in the candidate nations.

The pattern is visible, for example, in Serbia — where car plants are boosting employment but the country is still importing high-tech machinery.

When FDI concentrates in lower-value stages of production and local supplier bases remain thin, wage gains are limited and more value is captured abroad. Trade Imbalance: How Do EU Membership Contenders Stack Up Against the Bloc?_5

Trade Imbalance: How Do EU Membership Contenders Stack Up Against the Bloc?_5

“There is a duality in how FDI is perceived: politicians still see it as the key — sometimes even the only way — to develop the economy, while people are increasingly seeing it as a vicious circle," said Jovanović.

"Hence, a change in the economic model is long overdue — with a more selective approach towards FDI, focusing on high-quality and high-tech investment and a greater focus on domestic companies through industrial and innovation policies,” Jovanović added.

The argument is clear: while FDI raises employment and links these economies to EU markets, it becomes transformative only when it upgrades the local production base.

Otherwise, candidate countries risk remaining an assembly platform rather than a full partner in Europe’s value chains.

A test of Europe’s promise

In the end, the numbers tell both a success story and a warning. They show integration without transformation: Exports are up, factories are open, but productivity and infrastructure still lag.

The next phase will need to hinge on quality, not just quantity, say experts. This means selective FDI that upgrades supply chains, targeted single-market access tied to reforms, and faster investment in skills, energy, and transport.

If Brussels and the candidates can shift from assembly to innovation, the gap can narrow within a generation. If not, the candidate countries risk remaining a dependable workshop rather than a prosperous partner.

Source: Euronews

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