Key takeaways
- The European Union’s Corporate Sustainability Due Diligence Directive (CS3D) is now binding law. Any non-EU company earning more than €1.5 billion in EU revenue must audit and enforce compliance standards across its entire supply chain, including its American vendors, or face fines of up to three percent of its net worldwide turnover. American firms must be compliant by July 2029.
- CS3D is a new directive by the EU that will impose a new regulatory regime on American businesses operating on American soil. The directive seeks to impose restrictions on American companies and effectively allows bureaucrats in Brussels to set the standards for how American companies run their supply chains.
- Nearly 14.5 million Americans work in the three sectors most exposed to CS3D’s requirements: agriculture, mining and energy, and manufacturing. The Hudson Institute estimates aggregate U.S. compliance costs at nearly $1 trillion one-time and over $10 billion annually.
- Europe is now the largest importer of U.S. liquified natural gas, a relationship partially built in response to Russia’s invasion of Ukraine. CS3D’s compliance requirements make long-term energy supply agreements commercially untenable, threatening both American energy jobs and European energy security at a moment of significant global supply chain risk.
- Congress must take action to prevent Brussels from this egregious overreach that seeks to undermine the authority of American laws and regulations.
Executive summary
The European Union (EU) has enacted a regulation that reaches across the Atlantic and into the operations of American farms, factories, and energy producers. The EU’s Corporate Sustainability Due Diligence Directive (CS3D) requires large companies with significant EU revenue to ensure that every link in their—“chain of activities”—from raw material extraction through distribution and storage, complies with EU environmental and human rights standards. Companies that fail to comply face fines of up to three percent of their net worldwide turnover.
CS3D applies directly to non-EU companies with more than €1.5 billion in EU revenue. Companies like Apple, Pfizer, Boeing, and Caterpillar must extend their compliance obligations to the vendors, suppliers, and contractors in their supply chains, including small American businesses that do not operate within the EU. The directive’s Omnibus I package entered into force on March 18, 2026, and American firms must achieve full compliance by July 2029. Many will need to begin restructuring contracts and supply relationships now. Under Article 36 of Omnibus I, the latest version of CS3D, the EU Commission is required to reassess and consider expanding the directive’s scope by July 26, 2031 and every five years thereafter.
These regulatory requirements will raise costs for consumer goods and have the potential to result in significant job losses. American manufacturing, mining and energy, and agriculture sectors are most at risk: 14.5 million Americans work in these sectors and they play essential roles in ensuring the United States’ security and prosperity. The potential job losses will be concentrated in states and localities where a larger proportion of workers are employed in these sectors and where EU countries are major trade partners.
CS3D asserts the EU’s power to dictate environmental and social policy far outside its borders. American businesses already spend over $350 billion annually to comply with rules set by American legislators and regulatory agencies. CS3D layers EU requirements on top, without the consent of American voters or Congress. Brussels cannot be permitted to usurp and undermine the authority of American laws and regulations. Congress must reassert its authority to govern the United States.
Who governs the United States?
The European Union’s Corporate Sustainability Due Diligence Directive (CS3D) threatens to undermine EU-U.S. trade relations, raise costs for Americans, and lead to significant job losses throughout the United States. In particular, Americans working in manufacturing, agriculture, mining and energy are most likely to suffer due to these burdensome requirements. The EU is seeking to impose its restrictions on other countries through this due diligence directive. CS3D is designed to not only regulate large companies with significant revenues and interests inside the EU, but also their partners and vendors, including small American companies operating solely within the United States. The European Union should not impose additional trade barriers by requiring American firms to comply with the CS3D requirements. This regulatory regime poses a serious risk to EU-U.S. trade relations and will impose unnecessary and burdensome costs on American businesses and consumers.
CS3D asserts the EU’s power to dictate environmental and social policy far outside its borders by threatening massive fines on large companies if their operations do not comply with their due diligence regime. CS3D imposes new de facto regulatory standards for U.S. vendors that work with large multinational companies. This directive is now binding EU law. Non-EU companies with over €1.5 billion in EU revenue—around $1.73 billion USD at the time of writing—will be required to comply. The regulations require due diligence across the full “chain of activities,” including raw materials, manufacturing, distribution, and storage. Companies have until July 2029 to become compliant. CS3D functionally requires American companies to introduce extreme policies in order to maintain their operations in the EU.
If a company does not comply with these regulations, they can be fined for three percent of their net worldwide turnover. For large companies with significant business in Europe, this presents an intolerable risk. Apple, Pfizer, Caterpillar, and Boeing, for example, would all need to ensure compliance or risk the three percent fine. If they faced the full fine each company would have billions of dollars extracted from their shareholders, including pensions and retirees, as a functional tax by the EU. Under the General Data Protection Regulation, American companies have already received multibillion dollar fines. These fines have been levied despite these firms making significant investments in infrastructure and labor to mitigate risk. These costs will ultimately be passed on to Americans in the form of higher prices for goods and services and a weaker job market.
Americans did not vote for European regulations. To try to limit compliance costs, the latest version of CS3D places an “information request limit” that would exempt large companies from asking for reports from business partners under 5,000 employees, but only if they can get the necessary information elsewhere. This was not a genuine concession to American small business, as the compliance information required is not publicly available.
Companies will need to spend significant funds on compliance infrastructure. This will distort business decisionmaking as large corporations will prefer large vendors that already have invested in this infrastructure. This will require some smaller farms and businesses to sell to their larger competitors in order to maintain these contracts, reducing competition and raising the cost of goods. Alternatively, large American companies will have to decide whether they want to scale back their operations in the EU or exit the market altogether. The result of this new regulatory regime will be reduced trade between the EU and the United States, slower job growth, layoffs at companies as their revenues fall, and higher prices for Americans.
The uncertainty and higher costs imposed by the United States’ tariffs have been decried by leaders across the globe. The EU and the Trump administration have been negotiating to resolve these issues and stabilize the trade relationship. While the CS3D is not a tariff, its regulations will similarly create new frictions in trade between the EU and the United States. The narrative and public response may be more favorable than the tariffs, but the material consequences of the CS3D regulatory regime will compound existing business uncertainty and hurt economic growth throughout the United States and the EU.
A report by the Hudson Institute estimated that American firms, in aggregate, will need to spend nearly $1 trillion dollars in one-time compliance costs to adopt the CS3D requirements. Annual costs will be at least $10 billion per year. Similarly, a report commissioned by the Dutch Ministry of Foreign Affairs estimates that the Netherlands, which has a GDP comparable to Illinois, will spend hundreds of millions of euros annually to comply. The report also acknowledged that additional costs will be passed on to business partners that operate outside of the EU, though it did not attempt to quantify them. Those costs will be passed on to American small businesses, their workers, and their customers.
The Hudson analysis suggests that hundreds of thousands of Americans would be at higher risk of losing their jobs. The sectors most at-risk for job loss are agriculture, mining and energy, and manufacturing. The Hudson model is not a forecast, although the scale of the costs imposed by CS3D should not be underestimated. Nearly 14.5 million Americans work in agriculture, mining and energy, and manufacturing, comprising around 9.5 percent of the entire American workforce. While the radical scope of these regulations and the number of jobs in at-risk sectors should concern every American, the potential job loss and reduced economic activity will be concentrated in states with a greater proportion of their workforce in agriculture, mining and energy, and manufacturing and in businesses that export to the EU.
Agriculture
Under Article 10 of CS3D, U.S. farmers that sell to in-scope companies will need to provide contractual assurances that they are compliant with EU regulations. Farmers will need to comply or lose the contract, as their buyer will risk being fined three percent of their net worldwide turnover. In 2025, the United States exported over $14.5 billion dollars in agricultural products to the EU. American farms will need to meet European standards around pesticide use. Products such as chlorpyrifos, paraquat, and atrazine may be flagged as “potential adverse impact.” Farms using these products would need to create and execute a plan to cease their use of these products to comply with European standards. Atrazine, in particular, is a widely used pesticide inside the United States. Furthermore, European buyers may require the use of expensive monitoring technology or costly land-use changes to ensure compliance with CS3D. In practice, these requirements will hurt small and medium size farmers’ ability to sell products in Europe and lead to higher food costs and greater consolidation of the market. American farmers already face significant challenges and these additional burdens will lead to many smaller farms selling their land and livestock to larger corporations.
These compliance costs will not fall evenly across the American heartland. They will fall disproportionately on agricultural economies that have large existing trade relationships with European buyers. In 2024, EU countries imported $2.6 billion dollars worth of tree nuts. California grew nearly 37 percent of all of the EU’s imported tree nuts. Similarly, in 2025, the United States exported $1.2 billion in distilled spirits to the EU. Europe is by far the largest foreign purchaser of distilled spirits like Kentucky bourbon and Tennessee whiskey. Agriculturalists in California, Tennessee, and Kentucky will have their livelihoods upended by CS3D.
Soybean and corn farmers will also suffer. The states with the largest production of soybeans and corn in the United States are Illinois, Iowa, Minnesota, Indiana, and Nebraska. These states also produce over 50 percent of all corn in the United States. In 2025, American farmers sold $2.15 billion dollars of soybeans and $1.21 billion dollars of corn exports. While the production of these crops is more diffuse throughout the United States, farmers in the midwest are at significant risk from this new regulatory regime if there are no exemptions for their products.
While fewer Americans work in agriculture than other sectors, it is a sector that is fundamental to the nation’s security and prosperity. Burdensome regulations that will affect American farmers’ production require intense scrutiny. The European Union is a major trade partner for these crops and goods. A sudden decline in demand because of the CS3D’s trade barriers could have devastating consequences for ag producers throughout the United States.
Energy and mining
Large energy companies have complex operations that span throughout the world. Under CS3D, these companies will be required to conduct broad scoping of their “chain of activities” to identify potential human rights and environmental impacts, as defined by the EU. Once they have identified potential compliance risks, they will be required to address the identified issues. In some jurisdictions, they will almost certainly need to cease business activity because their partners will be unable to meet the reporting requirements or make the necessary operational changes. All of these requirements will raise costs on suppliers, from extraction sites in Texas and Louisiana, to mineral mining in developing nations. A smaller supplier will need to decide whether to invest in the audit infrastructure and mitigation or forgo the contract.
Over 586,000 Americans in the United States are employed in mining and energy. The top five states with the largest proportion of workers in these sectors are Wyoming (5.7 percent), North Dakota (4.2 percent), Alaska (3.8 percent), West Virginia (3 percent), and New Mexico (2.7 percent). In raw numbers, Texas has the most people employed in energy and mining, with 216,987 employees. Jobs in these industries are spread throughout the western United States as well as Louisiana, Ohio, Pennsylvania, and West Virginia. Workers’ jobs are at-risk if CS3D requirements inhibit the EU’s importation of U.S. oil, natural gas, and coal.
Following Russia’s invasion of Ukraine in 2022, the EU has become the largest importer of U.S. liquified natural gas (LNG). In 2021, Europe imported less than 4 billion cubic feet of U.S. LNG per day, around 35 percent of all American exports. In 2025, Europe imported nearly 10 billion cubic feet of U.S. LNG per day. Europe imports nearly 68 percent of all U.S. LNG exports, the largest importer by far. These exports account for over $37 billion dollars for American producers. In 2024, the United States exported an average of 1.93 million barrels per day of crude oil to Europe totaling $53 billion dollars, and analysts expect that to rise in the coming years. EU imports of coal, butane, and propane are more modest, but still significant. In 2024, the EU imported $3.4 billion dollars of liquefied petroleum gas and $3.95 billion dollars of coal. The fragility of global energy security has put the American-European energy trade relationship in stark relief. CS3D could unnecessarily undermine this relationship and result in fewer jobs in this sector and higher energy prices.
When Energy Secretary Chris Wright was at Davos, he made it clear that CS3D would undermine European security and hinder its economy. Secretary Wright has been a strong opponent to this new regulatory regime and has sought to convince the Europeans to abandon it. His concerns have been echoed by industry leaders. The CEO of ExxonMobil, Darren Woods, made it clear that he thinks CS3D will lead to his firm reducing its investment in Europe and left open the possibility of exiting,
“We see [CS3D] as untenable. Our ability to continue to operate and do business in Europe with that law hanging over our heads, I think is going to make it impossible to continue what we’ve been doing. It’s only going to accelerate our exit from Europe.”
If these regulations are imposed on U.S. companies, there will be significant costs and most of those will be imposed on consumers.
In the United States, the average price of a kilowatt of electricity in a city has risen by 38 percent over the last five years. It has risen from $0.137/kWh in February 2021 to $0.189/kWh in February 2026, according to the Bureau of Labor Statistics. Low-income households spend 17.8 percent of their income on energy for their home and transportation. Any regulation that adds compliance costs to American energy producers will pass additional costs to consumers. It is unreasonable for an LNG supplier to commit to a long-term trade agreement under a regulatory threat of up to three percent of their net worldwide turnover. At a time when the broader global energy supply chain is uncertain and as demand rises, CS3D’s consequences are certain to be disastrous.
Manufacturing
By far, the manufacturing sector bears the greatest risk from CS3D’s burdensome “chain of activities” compliance requirements. According to BLS, around 12.6 million Americans work in manufacturing. Manufacturing’s share of the workforce is highest throughout the Midwest, particularly in Indiana (16.5 percent), Wisconsin (15.8 percent), Iowa (14.2 percent), and Michigan (13.6 percent). But millions of Americans outside of the heartland also work in manufacturing. California has over 1.2 million manufacturing jobs and Texas has nearly one million. North Carolina and Florida each have over 425,000 workers in the sector. The National Association of Manufacturers describes CS3D as “job-killing European red tape.” American manufacturers are already heavily regulated and spend over $350 billion dollars annually to comply with existing regulations from American legislators and regulatory bodies.
Under CS3D, U.S. manufacturers that are in the chain of activities of firms that are in-scope—meet the requirements to be regulated under CS3D—will need to comply with a broad set of new regulations. In order to comply with these regulations, firms may need to invest in facility upgrades, design changes, or other modifications to their processes. The smaller firms in the chain of activities will need to assure their trade partner that they are compliant. CS3D requires the in-scope company to functionally monitor and regulate their business partners to mitigate the risk of the three percent of net worldwide turnover fine. The large company can be required to help fund corrective action plans to bring the Small Medium-sized Enterprises (SMEs) into compliance. This design is intended to prevent larger companies from simply terminating these relationships but, in practice, the rule will discourage them from taking risks on new smaller producers. This will lead to greater vertical integration of large firms, at the expense of American SMEs. The result will be higher consumer prices, layoffs, and reduced economic growth.
According to the U.S. Census Bureau’s trade data, U.S. manufacturers exported $272.7 billion dollars worth of goods to the EU in 2024. The largest subsector was pharmaceuticals with $53.1 billion in exports. The next largest subsector would be aerospace products and parts at $36.3 billion dollars. The United States also exports over $15 billion dollars in medical and navigational instruments and $14.4 billion dollars worth of automobiles and parts. These values all represent industries that employ millions of Americans. Both the one-time and ongoing costs imposed on businesses to comply with CS3D would place significant burdens across the manufacturing sector. Furthermore, this framework would add uncertainty that would discourage investment and entrepreneurship among American small businesses.
The costs to comply with this new regulatory regime will be striking. Advocates for the CS3D regulations downplay their cost, even calling them a pittance. If the compliance costs were small, then the value—as prescribed by the European Commission—created by these regulations would be trivial. If the largest American corporations are already nearly compliant and only need to spend a million dollars a year in compliance infrastructure and head count, then there’s no strong justification for this new regulatory regime. The projected marginal improvement in business practices would not justify the threat of fining these corporations three percent of their net worldwide turnover, or even making this an issue that further erodes EU-U.S. trade relations. The compliance costs are sure to be significant, will alter investment and business decisions, raise prices for consumers, and lead to layoffs in the most at-risk sectors.
Omnibus I, the latest amendments to CS3D, are in force as of March 18th, 2026. While American firms will not need to be in compliance until July 2029, many will need to make decisions now to prepare. The actual requirements under this due diligence regime are also likely to ratchet up in the future. Article 36 of the directive requires the European Commission to reassess the requirements on July 26th, 2031. The EU commission could expand the threshold of companies that are required to comply, enhance the enforcement mechanisms to ensure greater compliance, and create new sector-specific requirements. Congress should take action now to exempt American firms from this regulatory regime before American regulation is effectively delegated to the EU. This is not a partisan issue, it is a question of who governs American business.
The PROTECT USA Act
Senator Bill Hagerty (R., Tenn.) has introduced the Prevent Regulatory Overreach from Turning Essential Companies into Targets Act (PROTECT USA Act). The PROTECT USA Act seeks to nullify and deter the European Commission’s attempt to regulate American businesses operating outside of their jurisdiction. American firms that meet any of the following criteria would be considered covered companies: contract with the United States federal government, derive 25 percent or more of their revenue from extraction, agriculture, mining, or timber, have a manufacturing North American Industrial Classification System code, produce defense products or critical minerals, or are otherwise designated by the president.
Covered entities are prohibited from complying with CS3D or any foreign sustainability due diligence regulation that does not mirror existing U.S. law. U.S. firms that comply with CS3D would be fined up to $1 million dollars and would be unable to bid for federal awards or contracts for three years. American companies would be able to sue other companies for damages if the defendant complies with CS3D. Additionally, foreign court judgments against U.S. entities related to CS3D compliance would be unenforceable in any U.S. court. The PROTECT USA Act would further authorize the president to take action in defense of the public interest to protect covered entities from adverse foreign actions. The bill creates a direct legal conflict with CS3D that would require further action by the European Commission in order to resume normal trade relations.
Unless the American companies are given an exclusion from CS3D, the European Commission will usurp Congress’ authority to regulate businesses operating within the United States. This requires a Congressional response. While the provisions within the PROTECT USA Act are aggressive, Brussels’ overreach demands a strong rebuke. The consequences of CS3D will be devastating to American industry and the EU-U.S. trade relationship. Members of Congress should support a bipartisan bill that affirms that the United States is governed by our regulations and laws, not the European Union’s.
Key recommendations and conclusion
- Congress should support the efforts of Energy Secretary Chris Wright and other members of the executive to press the EU to abide by the terms of the EU-U.S. joint framework on trade. The Europeans made a commitment to ensure that CS3D would not “pose undue restrictions on transatlantic trade.”
- Congress should draft a bipartisan bill that affirms that the United States is governed by American regulations and laws, not the European Union’s.
- Policymakers should negotiate a return to normal trade relations with the European Union.
While labor and environmental safeguards are important, CS3D is a dramatic overreach of EU regulatory authority far beyond its borders into the heart of the American economy. American policymakers must act to protect U.S. businesses, employees, and consumers from egregious regulatory demands from Brussels.