When ‘Free Trade’ Isn’t Really Free: Ukraine’s Export Crunch and EU Quotas Return

Ukraine’s wartime ‘free trade’ with the EU ends, exposing export declines, industrial struggles, and urgent economic reforms needed

In June 2025, Ukraine’s special wartime trade terms with the EU expire, reverting to quotas and tariffs largely driven by Poland. Despite temporary export boosts, Ukraine faces declining exports, industrial setbacks, and rising imports, highlighting deep economic challenges. Experts warn that without urgent reforms and diversification, Ukraine risks prolonged dependency and weakened recovery amid ongoing conflict and shifting geopolitical realities.

In June 2025, Ukraine faces a major turning point in its trade relationship with the European Union. After years of a near ‘free trade’ regime with the EU, the current special trade terms granted during wartime are set to end. This means a return to a more traditional, quota- and tariff-based system — a move heavily influenced by Poland, a key EU player pushing for restrictions.

But why does this matter so much? The story isn’t just about tariffs; it’s about the fragile state of Ukraine’s export economy, its wider industrial challenges, and the geopolitical realities shaping its trade fate.

The Myth of Absolute Free Trade

The phrase ‘free trade’ between Ukraine and the EU has been somewhat misleading from the start. The Deep and Comprehensive Free Trade Agreement (DCFTA) came into force in 2016 but was never entirely free — tariffs and quotas have always existed, especially on sensitive goods like honey and poultry.

Oleksiy Kusch, an economist, explains: “What we call ‘free trade’ is often a relative term. Even before the war, quotas and tariffs limited Ukraine’s ability to fully capitalize on the EU market. The temporary abolition of these restrictions since 2022 was an extraordinary wartime measure — a lifeline for our exporters in a time of crisis.”

This wartime reprieve boosted exports but could not completely offset the war's economic shocks.

The Export Slide: A Complex Puzzle

Contrary to expectations, Ukrainian exports have not surged ahead in anticipation of the June tariff reintroduction. Instead, export volumes fell sharply in early 2025. According to Ukraine’s statistical authority, in Q1 2025, exports totaled $9.95 billion — down 6.9% compared to Q1 2024, with January and February showing double-digit declines of 11.5% and 13%, respectively.

Meanwhile, imports soared 14.7% in March alone, pushing the trade deficit to a staggering $8.51 billion in Q1, up from $5.4 billion a year earlier. The coverage ratio of exports to imports dropped to just 0.54, signaling a growing imbalance.

According to experts, the decline in exports amid rising imports suggests something deeper than a simple market reaction. This is a symptom of shrinking domestic production capacity, forcing Ukraine to rely more heavily on imports while its export industries struggle.

The contrast is striking when compared to China's export boom to the US in early 2025, driven by anticipation of tariff changes — a trend Ukraine failed to replicate.

Behind the Numbers: Industrial Decline and Agricultural Setbacks

The reasons behind the drop in exports are varied. One major factor is agricultural production. A significant decline in exports of grain, vegetable oil, and minerals is due to both bad harvests and transportation problems. Drought and bad weather affected the 2024 harvest, while mineral shipments were delayed because of transport issues.

Another factor is the loss of important markets. Exports to China dropped sharply by 41.7%, and shipments to Germany and Spain also declined. These countries used to be key partners in Ukraine’s trade network.

Manufacturing is another area facing challenges. Energy-heavy industries have struggled due to higher costs and damage to infrastructure. For example, the closure of the Pokrovsk coal mine — a major supplier located in the conflict-affected Donbas region — has had a significant impact.

Finally, the amount of land being farmed is shrinking in some key areas. While overall farmland under crops has actually increased by 7.8% in Ukrainian-controlled territory, important regions near the conflict zones — like Donetsk, Luhansk, Dnipropetrovsk, and Poltava — have seen decreases. This shows how the ongoing fighting continues to affect agriculture.

Kusch highlights this geographic contraction as a ‘deep crisis indicator.’ He says, “We’re seeing an economic shrinkage to a productive core inside Ukraine, while peripheral regions — both conflict-affected and relatively calm — lose their agricultural and industrial footing. This ‘bread index’ of sown areas mirrors the war’s economic geography.”

Slowing Growth and a Fragile Outlook

The European Commission’s recent forecast mirrors these concerns. Despite resilience in 2024, Ukraine’s GDP growth is expected to slow to 2% in 2025, down from more robust growth in previous years.

High energy prices, infrastructure attacks, and war expenditures weigh heavily. Inflation is forecasted at 12.6%, driven by rising energy and labor costs. The Commission notes that negative net exports — due to surging imports — are a drag on growth. Defense spending and coal imports keep import demand elevated, exacerbating the trade deficit.

Experts offer a sobering perspective. They say the legacy economic model, based on raw material exports and weak industrial policy, is unraveling. Without a decisive shift toward industrialization and export diversification, Ukraine risks being trapped in a cycle of dependency on imports and external aid.

Labor Market Paradoxes

The labor market reveals another paradox. War-related disruptions sustain high unemployment, yet military conscription and population displacement have slashed the workforce, creating acute labor shortages. As a result, wages rose nominally by 23% in 2024, adding to production costs.

A Tough Spot

Ukraine finds itself in a tight spot. The return to pre-war trade rules with the EU will challenge exporters, especially in sectors hit by quotas. Meanwhile, the erosion of export markets and industrial capacity threatens to stifle economic recovery.

However, there are signs of hope. Private consumption and investment, especially in defense and infrastructure, remain key growth drivers. Some regions like Chernihiv show resilience and gradual recovery. And new trade partnerships might develop to offset losses in China and Europe.

Analysts caution that moving from the ‘free trade’ approach used during the war back to a normal economy will be tough but unavoidable. This highlights the urgent need for a clear industrial strategy, energy reforms, and expanding into new markets. Ukraine’s economic future hinges on its ability to innovate and rebuild beyond the old ways.

Ukraine’s trade with the EU goes beyond just tariffs — it reflects the country’s deeper economic struggles amid ongoing conflict. Falling export volumes and growing reliance on imports highlight the urgent need for reform and building resilience.