IMAGE: REUTERS/ALTAF HUSSAIN
“WE DID it. We delivered the mother of all trade deals,” declared European Commission president Ursula von der Leyen to India’s prime minister, Narendra Modi, in New Delhi on January 27th. Her triumphalism was understandable. The agreement concluded after her visit is expansive in scale, poised to eliminate some €4bn in tariffs on European exports. It will gradually cut India’s 110% levy on EU cars to 10%; reduce a 150% tariff on wine to as low as 20%; and phase out dozens of other barriers on chemicals, machinery and olive oil. In return, the EU grants preferential access for more than 99% of Indian exports, worth about $75bn. In a world of fragmenting trade, two democratic giants have decided to hug each other closer.
The deal’s heft owes much to the pressures that forged it. Its negotiations, dormant since 2007, were revived with fresh urgency last year. The catalyst sits in Washington. Since last August American tariffs of up to 50% on a swathe of Indian goods, imposed in response to its purchases of Russian oil, have rerouted trade flows and corporate strategies. Manish Bhatia, chief financial officer of Indo Count Industries, a Mumbai-based textile giant, describes the scramble. His firm, which relied on the United States for about 70% of its bed linen sales, has been recruiting sales teams in Europe and chasing buyers from France to New Zealand. “We need to diversify,” he says. “You cannot depend on one country.” His sentiment echoes in boardrooms across India.
The pact is a cornerstone of New Delhi’s answer to Donald Trump’s trade aggression. Modi’s government, historically protectionist, has been signing agreements with rare haste. Deals with Britain, New Zealand and Oman have been clinched recently. Talks with others progress. According to Barclays, India has now closed or is negotiating pacts covering about 55% of its total trade. The European Union, already its biggest trading partner with €180bn in annual two-way commerce, was the most significant prize. For Brussels the logic is equally compelling. Facing its own threats of additional American tariffs, securing deeper access to the world’s fastest-growing large economy is a geopolitical and commercial victory.
The agreement is notably pragmatic: sensitive political constituencies on both sides were shielded. India’s dairy farmers, a powerful voting bloc, face no new competition. Europe’s beef, chicken and rice producers are similarly protected. The European steel lobby, which complains of “highly protectionist” Indian standards, will see tariffs fall but must wait a decade for full relief. That selective liberalisation reflects political reality. The deal is meant to create visible winners—European automakers and distillers, Indian textiles and services firms—while muffling the cries of losers. It is trade diplomacy as the art of the possible.
Its significance transcends tariffs. The EU has promised €500m to help Indian industry decarbonise. That is a tacit acknowledgment of New Delhi’s anxieties about the bloc’s carbon border tax, which could otherwise penalise Indian exports. The pact also promises smoother customs and greater regulatory co-operation. For European businesses, long frustrated by India’s cumbersome red tape, those are possibly transformative. They make the agreement not merely a list of tariff cuts but a framework for stronger economic integration, too.
The wider implication is a reordering of global trade axes. Brahma Chellaney of the Centre for Policy Research in New Delhi calls the partnership “a strategic anchor of the 21st-century global order”. That may overstate the case, though the direction is coming into view. As America turns inward, wielding tariffs as a tool of unilateral diplomacy, other major economies are crafting their own alliances. This deal is not an anti-American bloc. It is, however, a formidable plan B. It confers both partners a measure of insulation from American volatility and a shared platform for growth.
Risks remain: the pact must be ratified by the European Parliament and EU member states, a process where farm lobbies could yet balk. Its benefits will materialise over years rather than immediately. And for all its scope, it cannot fully offset the shock of the American tariffs. Priyanka Kishore of Asia Decoded, a research consultancy, estimates those levies could already be reducing India’s GDP by about 0.4% with cascading effects on jobs and investment. No single alternative market, not even the EU, can replace the sheer consumption power of the United States overnight.
Yet the very existence of that accord alters the calculus. It provides Indian exporters like Mr Bhatia a credible pathway to lessen their dangerous dependency. It gives European companies a firmer foothold in a market of 1.4bn people. Most importantly it signals that the world’s economic giants are not passively accepting a descent into protectionist chaos. They are actively weaving new networks of mutual interest. The mother of all trade deals may, in time, be seen as the birth of a more pragmatic and plural trading order. One where alliances are built not on nostalgia or bluster, but on the sober recognition that in a fracturing world, finding new partners is not a choice. It is a necessity. ■
