European small and medium-sized enterprises (SMEs), already facing a high number of regulatory obstacles in recent years, now face further uncertainties connected to evolving approaches to trade. Yes, these conflicts have also created opportunities, but EU policymakers are now seeking to ease the burden of existing regulations, reconsidering existing trade dependencies, and exploring new and more diversified partnerships. There’s a growing focus on strengthening Europe’s internal capacity to support innovation. For many SMEs, this new landscape could open doors to new markets, more targeted support, and a business environment better suited to their growth. But only if regulatory simplification is made a central priority.

Expanding trade partnerships

The EU is both updating existing trade agreements and negotiating new ones that could play a key role in diversifying its economic relationships. New free trade agreements between the EU and India, as well as the EU and the Republic of Korea agreements could unlock immense potential, connecting European innovation with their growing tech market and skilled workforce. Talks with Indonesia, Southeast Asia’s largest economy, further signal a pivot toward more resilient supply chains and emerging digital markets.

Meanwhile, the EU-Mercosur Agreement, nearing adoption, would link more than 700 million people and open major opportunities for green tech and European exports. These agreements are growth engines for European companies, especially startups and SMEs eager to scale globally.

Strengthening technological capacity

 Beyond trade, there is a growing emphasis on enhancing Europe’s technological capabilities. In the context of global competition and supply constraints, increasing domestic innovation capacity has become a strategic priority. The EU is trying position itself as the global centre of AI innovation through the AI Continent Plan.

Building AI factories, supporting deep-tech research, and ensuring that EU startups can scale internationally are crucial to developing global leadership in AI. Through the AI Continent Plan, Europe plans to scale up computing infrastructure, increase access to quality data, develop algorithms, and build a strong AI talent base.

Reducing administrative burdens

Emerging trade agreements, investments in technology, and a renewed policy focus on startups all point in the right direction. However, none of these efforts will reach their full potential without tackling one of the biggest barriers facing smaller firms: regulatory complexity.

In 2019, the overwhelming majority (98.9 per cent) of EU businesses forming part of the non-financial business economy were micro or small enterprises employing fewer than 50 persons. However, the EU’s increasingly complex regulatory landscape has created significant burdens on small businesses, making it harder for them to compete and grow. This concern has been shared in the Draghi Report as well as reflected in Atomico’s 2024 State of European Tech report.  Concretely, Draghi highlighted that GDPR compliance costs have reduced profits for small European tech firms by up to 12 per cent.

The current European mandate must put startups and SMEs at its core. The simplification mandate must be more than a slogan; it must translate into concrete action. Initiatives such as the EU Innovation Act or the 28th Regime, which aims to streamline funding and support mechanisms, as well as the proposed Standard Essential Patents (SEP) Regulation, are a positive step in simplifying complicated regulations that may otherwise trap startups in legal limbo. These are the kinds of policies that empower smaller innovators to thrive without being drowned in bureaucracy.

Cutting red tape is not only a matter of efficiency, it’s a prerequisite for competitiveness. Simplifying rules, harmonising procedures, and ensuring predictable legal frameworks can significantly lower the cost of doing business, especially for companies operating across borders. Decisions such as the withdrawal of the ePrivacy Directive or the AI Liability Directive are also positive signs from the EU policymakers.

If Europe wants to remain an attractive market for innovation and entrepreneurship, reducing administrative burdens must be a central pillar of its strategy. SMEs need a regulatory environment that allows them to focus on what they do best: building, growing, and driving innovation across the continent.

A changing policy landscape

The new global tensions have created challenges for Europe’s business environment. But they have also prompted a broader reflection on how to build a more competitive, resilient, and innovation-driven economy. This new era presents an opportunity for Europe to become a more competitive and innovative continent where businesses are empowered to scale-up and grow. The latest trade agreements together with the simplification mandate are the right step forward, and at ACT | The App Association we remain available to support EU policymakers in achieving these goals.