PolicySphere and Baron Public Affairs are collaborating on a series of articles exploring the impacts of EU regulation on U.S. industry. This series is sponsored by Baron Public Affairs.

As we have detailed in our previous articles, the EU’s forthcoming CS3D directive threatens to cost American business upward of $1 trillion in one-time compliance costs. What’s more, it is part and parcel of a very well-thought-out strategy by the EU to systematically exploit and free-ride off American dynamism while imperialistically imposing an ideological agenda to the US through regulatory powers.

What can be done? 

Thankfully, the US has a  window before the CS3D text is finalized and implemented to force a reconsideration of this reckless course by the EU. 

And there are many tools that the Trump administration and Congress can use to force a fundamental recalibration of this EU regulatory overreach before it takes effect. Below we outline a multilayered strategy for doing so, as detailed in Baron Public Affairs’ recent report on CS3D and its threat to American business. 

The benefit would not just be stopping CS3D, but establishing an important principle and precedent: nations that depend upon American military protection and market access cannot simultaneously launch regulatory attacks on American industry.

Executive Branch Authority and Strategic Options

The administration possesses several enforcement mechanisms. Most directly, it can formulate reciprocal tariffs on EU imports, directly calculated to offset CS3D compliance costs. This would be a conditional measure that would remain in place until the directive's negative impacts are adequately mitigated. President Trump has already demonstrated this approach's effectiveness: when Canada planned to implement a Digital Services Tax targeting American companies, the administration made repeal a top negotiating priority, ultimately securing Canada's withdrawal of the measure without sacrificing broader trade objectives.

The administration should similarly deploy this leverage against CS3D. The recent US-EU Framework Agreement includes European commitments to reduce CS3D and CSRD burdens, but many seem to be mainly theatrical, referring to reductions already under way within the EU.  (Many of these reductions do not not substantively lighten the burdens on U.S. companies, however). Future trade negotiations provide opportunities to secure genuine relief, particularly if the administration makes clear that regulatory imperialism carries consequences comparable to traditional trade barriers.

Additionally, the USTR should formally list CS3D in its annual National Trade Estimate report, which catalogs foreign trade barriers facing American companies. This designation signals strong governmental opposition, creates pressure for clarification and moderation, and lays groundwork for potential WTO consultations or trade retaliation. Given CS3D's extraterritorial reach, vague legal standards, and disproportionate impact on US firms, inclusion is clearly warranted.

Legislative Solutions and Precedent

Congressional action offers the most definitive response. The PROTECT USA Act of 2025 would prohibit entities "integral to the national interests of the United States" from complying with CS3D, thereby confining the directive's effects to EU jurisdictions. This legislation has been referred to the Senate Committee on Foreign Relations but requires renewed momentum.

Importantly, this approach has strong bipartisan precedent. In 2012, Congress passed legislation preventing US airlines from complying with EU aviation emissions regulations that would have imposed carbon taxes on flights into and out of European airspace. The bill, spearheaded by Senator John Thune, passed with bipartisan support because it protected American workers and companies from extraterritorial overreach.

CS3D presents similar political dynamics. The directive's impacts extend beyond large multinationals to tier-one and tier-two suppliers across manufacturing, agriculture, and logistics—politically powerful constituencies in both parties. This creates opportunities to mobilize pro-union Democrats and traditionally regulation-tolerant lawmakers on grounds of job protection, supply chain stability, and resistance to foreign regulatory jurisdiction over American commerce.

Congress also possesses appropriation leverage. Linking European defense spending commitments to regulatory fairness toward American companies would highlight the profound asymmetry in the transatlantic relationship, and make an important symbolic statement: European nations that chronically under-invest in their own defense while depending on American military protection cannot simultaneously handicap the American companies whose success funds that protection.

Engaging Individual Member States

The EU's regulatory apparatus operates through member state implementation, creating opportunities for targeted bilateral pressure. Germany presents the most promising opening: Chancellor Friedrich Merz has publicly called for CS3D's repeal, and the recent coalition agreement includes compromises reducing bureaucratic burdens in exchange for rescinding Germany's domestic supply chain law. France's President Macron has similarly suggested CS3D should be "put off the table."

The administration should engage these leaders directly, offering diplomatic support in exchange for supporting the abandonment of CS3D. The administration should make clear that aggressive CS3D implementation by any member state will trigger consequences affecting bilateral relations. Since non-EU companies face supervision by the member state where they generate the most EU revenue—typically Germany or France for major American multinationals—securing moderate implementation would already provide meaningful protection.

The United States should also provide diplomatic backing and strategic guidance for legal challenges within member state courts questioning national CS3D implementation. While the federal government cannot directly fund litigation, the State Department, Commerce, and USTR can support these efforts through research, technical assistance, and public advocacy. 

The Broader Strategic Context

Europe's regulatory imperialism must be understood within the context of the broader deterioration of the transatlantic relationship. For decades, European nations have been free-riding on American defense spending, using resources that should fund their own security to instead finance social programs and industrial policies, even policies sometimes explicitly directed against American commercial interests. Certain EU member states operate as tax havens, extracting benefits from American innovation while depriving the U.S. Treasury of over $100 billion annually in corporate tax revenue. 

CS3D represents the next evolution: moralistic regulatory imperialism that imposes progressive European values on American companies. This behavior is particularly galling given Europe's simultaneous courtship of China.

At its foundation, the regulatory conflict reflects competing visions of Western civilization's future. Many European elites, delusionally but sincerely, view their expansive regulations as moral leadership adapting Western values to twenty-first century challenges. American conservatives, instead, see a Europe that is slouching toward bureaucratic nanny-stateism, risk aversion, and moral relativism. Furthermore, they see this self-destructive behavior as occurring, at least in part, precisely because the United States continues underwriting European security, allowing Brussels to indulge utopian ambitions and progressive virtue-signaling without having to confront practical realities.

This is a very unhealthy dynamic, and fundamentally readjusting it and restoring health to the transatlantic partnership would be in the interests, not only of America, but ultimately, of Europe and of Western civilization as a whole as well. 

This article was developed in collaboration with Baron Public Affairs. For further information, please contact Baron Public Affairs.