The European Union‘s Corporate Sustainability Due Diligence Directive is sold with lofty rhetoric about sustainability and responsibility, but in reality, it’s an unprecedented regulatory overreach. For U.S. manufacturers operating in or trading with the EU, it represents a European power play that piles on red tape, threatens jobs, and exports foreign bureaucracy straight into the American economy.
At its core, the CSDDD requires companies to identify, prevent, and mitigate human rights and environmental risks not only within their own operations but across their global supply chains. For manufacturers, that means tracking every supplier and contractor, from raw materials to final assembly. Firms with the most rigorous compliance programs face the reality that supply chains are vast and fragmented. As such, they are often beyond a company’s practical control.
Compliance will demand an array of auditors, lawyers, and consultants to map sprawling supply networks and report annually to EU regulators. U.S. manufacturers will be forced to duplicate compliance systems they already operate under American law, this time tailored to appease Brussels’s evolving and inconsistent mandates. The result will be costly duplication and uncertainty, resulting in an administrative chokehold that siphons resources away from innovation, investment, and job creation.
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Manufacturing is built on efficiency. Yet, CSDDD requires constant policing of supply chains, even in far-flung corners of the world where visibility and controls are weakest. If a European regulator deems a supplier noncompliant, manufacturers may be forced to suspend or terminate contracts, even if those suppliers are critical to production schedules. The potential for bottlenecks, delays, and shortages is very real, especially in industries dependent on specialized components or scarce raw materials. For sectors such as automotive, aerospace, and electronics, where lean supply chains are the norm, these disruptions could ripple across global markets.
It is critical to note that while some in Brussels claim recent changes have trimmed back the harshest CSDDD provisions, those changes are far from final. Left-wing parties and member states are already working to reinsert stricter measures, and even the current proposal still allows EU regulators to fine companies up to 5% of their global revenue each year for what they determine to be “inadequate compliance.” For major manufacturers with a footprint in the EU, which could amount to billions of dollars in recurring penalties, draining resources that should fuel investment and growth. By holding firms to climate transition plans that are impossible to reach with today’s technology, Brussels has effectively created a built-in cash grab that leaves U.S. manufacturers exposed to permanent financial risk.
No one disputes the importance of environmental stewardship and ethical supply chains. Many U.S. manufacturers are already leaders in corporate responsibility. But by imposing extraterritorial obligations and liability for the conduct of suppliers, the EU risks undermining its own competitiveness while penalizing non-EU companies that are engines of innovation, trade, and employment.
Major energy leaders are starting to call attention to this issue. In late October, U.S. Energy Secretary Chris Wright wrote a letter to the EU’s leaders detailing how CSDDD will “pose a significant risk to the affordability and reliability of critical energy supplies for households and businesses across Europe and an existential threat to the future growth, competitiveness, and resilience of the EU’s industrial economy.” Messages like this are critical. U.S. manufacturers cannot sustain healthy competition and growth while facing the unruly compliance and extraterritorial regulations of CSDDD.
As Washington policymakers assess the impact of CSDDD, Congress’s interest in curtailing foreign intrusion into our regulatory system, as seen by the legislation introduced by Sen. Bill Hagerty (R-TN) and Rep. Scott Fitzgerald (R-WI), is telling. Such a legislative approach is not without firm bipartisan precedent.
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At the same time, continuing trans-Atlantic dialogue is essential to harmonize sustainability goals with realistic implementation. We encourage U.S. trade officials to continue to negotiate with their European counterparts to exempt U.S. companies from CSDDD and other EU extraterritorial mandates. As Charles Crain, managing vice president, policy, at the National Association of Manufacturers, stated in a letter to congressional lawmakers, ”Subjecting U.S. firms to the EU’s climate-related disclosure and due diligence requirements will significantly increase compliance costs for manufacturers while ceding the U.S.’s authority to set governance standards appropriate for American businesses.”
Washington must act now to stop CSDDD before it locks U.S. manufacturers into a permanent regime of European red tape, erodes American sovereignty, and undermines our global competitiveness. Otherwise, U.S. manufacturers will be left to navigate new compliance risks that distract from their core mission: building, innovating, and delivering the goods that provide jobs and support economic growth.
Mike Roman is a senior fellow at the American Council for Capital Formation
