India Forges Trade Deals with EU and Others as Counter to US Tariffs and Global Economic Uncertainty

India is paying a 50 percent tariff to sell its goods in the United States, while only 15 percent in the 27 countries of the European Union (EU).

Meanwhile, India and the EU have announced a 'Free Trade Agreement' (FTA), which is being seen as a message to the United States. The US has appeared aggressive regarding this development. US Treasury Secretary Scott Bessent said on January 24, 'Our allies in Europe refused to impose tariffs on India in exchange for buying oil from Russia, because they had a major trade deal to make with India. Europe is helping itself against Russia's war in Ukraine.'

The US wanted Europe to also impose tariffs against India, but that did not happen. Europe considers Russia's attack on Ukraine a greater threat to itself, but the US imposed tariffs on India, citing the purchase of Russian oil.

Russian President Vladimir Putin visited New Delhi just last month, and next month, top leaders of the European Union visited India.

Christopher Clary, a professor of political science at the University of Albany in the US, wrote on the social media platform 'X' about the EU-India FTA, 'The EU-India trade agreement reminds us that alternatives are available with other countries too. If the US creates a tariff policy based on economic dominance and misuses it, that pressure will be useless. The world's resistance against American arbitrariness is now continuously increasing.'

Noted strategic affairs expert Brahma Chellaney also believes that this will reduce India's dependence on the US. Chellaney wrote on X, 'At a time of crisis when the 'supply chain' is disrupted and protectionism is rising, this holds more significance than just a trade agreement.'

He added, 'This is like strategic insurance, which establishes India and the EU as a democratic balance against China's state-centric trade model and weakens Trump's strategy of weaponizing tariffs. This agreement reduces India's dependence on both the US and China.'

US Ambassador to New Delhi, Sergio Gore, while congratulating India on its 77th Republic Day on Monday, wrote, 'It was very exciting to see US-made aircraft flying in the Indian sky.'

However, the Indian sky featured not only American jets but also Russian jets, and the S-400 missile defense system from Russia was also displayed in the parade. This was an uncomfortable moment for the chief guest of India's Republic Day, European Commission President Ursula von der Leyen, and European Council President Antonio Costa. NATO views the S-400 as being against its interests.

'The Hindu's' diplomatic affairs editor, Suhasini Haidar, wrote on X, 'India's strategic autonomy was fully displayed in the Republic Day parade. Russian military hardware/designs, including the S-400 missile system, T-90 tanks, and the jointly developed BrahMos missiles, were showcased right in front of the EU leaders who were present as chief guests.'

Both Trump and Europe want India's close relationship with Russia to diminish, but Europe did not impose tariffs on India as the US did to pressure it. While Sergio Gore was happy to see American jets in the Indian sky, he must also have been uncomfortable with the Russian jets and the S-400.

• FTA Becomes Strategy

According to Ajay Srivastava of the Global Trade Research Initiative (GTRI) in Delhi, India is not concerned about such discomfort, and Trump is finding it hard to digest. Ajay Srivastava says, 'The diplomatic environment in the US is not what it used to be. The Trump administration's focus is on domestic politics and transaction-based relationships, which has weakened the traditional definitions of cooperation. India wants to maintain a strategic partnership with the US but also understands that in the current situation, over-dependence can be risky.'

He adds, 'There is a lack of consistency in Trump's foreign policy. His stance towards countries like Pakistan, China, and Russia has changed frequently. This makes it difficult for India to formulate a long-term strategy. India will not always bow down to American discomfort.'

India is entering into FTAs with many countries to mitigate the impact of US tariffs. Srivastava says, 'The agreement on the EU-India FTA was reached precisely because of Trump's policies. Both countries have become more liberal in reaching the agreement. Now the question is, will the FTA with the EU reduce the impact of Trump's tariffs?'

'Look, the US is a very large market for every country. India's exports to the US have decreased by 20 percent in the last two months. India is currently suffering losses from the US, but the FTA with the EU will take about a year to implement. Clearly, once implemented, India's exports will increase, and the pressure from Trump's tariffs will lessen. I thank Trump because he has made it clear that you should not depend on anyone. India has started implementing many reforms because of Trump, and agreements are also being reached on FTAs. Relying on the US will be risky.'

Previously, India had signed FTAs with Oman, New Zealand, and the UK. Talks regarding the FTA with the EU had been ongoing for years, but it was finalized when global upheaval occurred due to the policies of US President Donald Trump.

• Impact of FTA with the EU?

Both India and the EU want to reduce dependence on the US as well as China. Earlier, it was said about India that it follows protectionist policies, meaning it avoids fully opening its market. Now, India seems to be shedding that image.

Neutralizing the damage caused by Trump's policies while strengthening ties with Russia and securing an FTA with the EU in its favor is no small challenge for India.

Amitendu Palit, Research Head of Trade and Economics at the Institute of South Asian Studies, asserted in a conversation with Bloomberg that countries are rapidly preparing by forgetting past bitterness in an 'atmosphere of uncertainty' regarding Trump's policies. He said, 'Ending dependence on any single entity has become imperative.'

Following the 50 percent tariff by the US, Indian Prime Minister Narendra Modi is trying to find new markets. Trump had called India the 'Tariff King'. Following this, India is trying to forge partnerships with the Mercosur bloc, Chile, Peru, and the Gulf Cooperation Council.

A report by Madhavi Arora, Chief Economist at MKA Global Financial Services Limited, suggests that India's exports to the EU could increase by up to $50 billion by 2031 through the EU-India FTA. The report states that the FTA with the EU will directly benefit India's pharmaceutical, textile, and chemical sectors.

In the last fiscal year, bilateral trade between the European Union and India stood at $136.5 billion, with the EU accounting for over 17 percent of India's total exports. India is the EU's ninth-largest trading partner.

The European Union will gain access to one of the fastest-growing economies. India is a market of over 1.4 billion people.

The United States is India's largest trading partner. According to the Ministry of Commerce, bilateral trade between India and the US in 2024-25 was $131.84 billion. India had a 'trade surplus' of $41.18 billion with the US in the last fiscal year, meaning India sold more goods to the US than it bought. President Trump dislikes this and wants the trade surplus to favor the US.

The US is the largest export market for India, and India sold $87 billion worth of goods to the US last year. According to Bloomberg Economics, Trump's tariffs could reduce India's exports to the US by up to 52 percent, potentially reducing India's GDP by 0.8 percent in the medium term.

The $41 billion trade surplus will be severely affected by Trump's tariffs, but Ajay Srivastava says that the losses will be compensated, not immediately, but within the next one or two years, through the FTAs India is pursuing. Srivastava says, 'European economies may be more beneficial for India than the US. Major exports from Europe to India include high-tech machinery such as jet engines and industrial control valves. In contrast, imports from the US include many common items, such as agricultural products like corn and soybeans, as well as scrap and recycled materials. Major exports from India to Europe include textiles and refined petroleum products.'

Under the EU-India FTA, India will eliminate or reduce tariffs on more than 90 percent of goods from the EU, which should result in savings of approximately $4.8 billion annually. Tariffs on European cars will gradually decrease from the current 110 percent to 10 percent, with the lower tariff applying to a maximum of 250,000 vehicles each year.

According to the EU, tariffs on machinery, chemicals, and pharmaceuticals from India will also be eliminated, and tariffs on major agricultural products will be reduced or removed.

• FTA with New Zealand

New Zealand and India announced a Free Trade Agreement (FTA) last month in December. The FTA with New Zealand also reflects India's efforts to increase global economic access. The New Zealand Trade Minister called it a historic agreement.

He stated, 'It will bring 95 percent of its current exports to India under zero or very low tariffs.' This includes products ranging from coal to lamb meat and infant formula milk. India has also reduced duties on a limited import of apples from New Zealand, which is its first concession on this fruit under any free trade agreement.

This move came at a time when the US is pressuring New Delhi to open its market for American apples. In return, New Zealand will eliminate duties on all Indian exports and offer flexibility in immigration rules for students and workers coming from India.

Indian Prime Minister Narendra Modi spoke with his New Zealand counterpart Christopher Luxon by phone, and both expressed confidence in doubling bilateral trade in the next five years. New Zealand also agreed to invest $20 billion in India over the next 15 years.

However, due to the low trade volume, this is not expected to significantly boost India's exports. In 2024-25, the total trade between New Zealand and India stood at $1.3 billion, with India's exports at $711 million and imports from New Zealand at $587 million.

• FTA with the UK

India and the UK signed a Free Trade Agreement in May last year. According to the British government, this agreement will increase bilateral trade to $34 billion.

According to the British government, India has reduced tariffs on 90 percent of goods, most of which will become duty-free within a decade. Duties on British whiskey and gin will be halved to 75 percent and later reduced to 40 percent. India will also reduce its tariff on cars, which is over 100 percent, to 10 percent under a quota. In return, the UK has reduced tariffs on goods including textiles, footwear, and food products like shrimp.

According to UK government data, total trade in goods and services between the UK and India in 2024 was $58 billion. This made India the UK's 11th largest trading partner. This trade agreement comes at a time when many countries are trying to strengthen their alliances.

• FTA with Oman

India signed an FTA with Oman last December. India's Ministry of Commerce and Industry stated that this Gulf country has offered zero duty on more than 98 percent of its 'tariff lines'. This includes major labor-intensive sectors such as gems and jewelry, textiles, plastics, pharmaceuticals, automobiles, and engineering products.

The statement mentioned that New Delhi agreed to reduce tariffs up to 77.79 percent, protecting sensitive sectors like dairy, tea, coffee, and gold-silver. Prime Minister Narendra Modi traveled to Oman with key members of his cabinet to sign the agreement.

India is also trying to strengthen its strategic and economic partnership with Middle Eastern countries. India has already signed a free trade agreement with the United Arab Emirates (UAE) and is discussing a trade agreement with the Gulf Cooperation Council countries.

Bilateral trade between Oman and India in 2024-25 was $10.6 billion. However, Oman is a major energy partner for India. Last year, Oman was India's fourth-largest energy supplier, with 99.9 percent of imports being 'Liquid Natural Gas' (LNG). In return, India mainly sends agricultural products, mineral oils, steel, petroleum products, chemicals, and pharmaceuticals to Oman.

• Canada and Brazil Next

Brazilian President Lula da Silva is scheduled to visit India next month on February 19. Indian Prime Minister Narendra Modi recently spoke with President Lula by phone, after which Lula announced his visit to India. Both Brazil and India are members of BRICS. Both countries are facing Trump's tariff policies.

Furthermore, Canadian Prime Minister Mark Carney will visit India in March. Mark Carney, addressing the World Economic Forum in Davos this month, stated that 'middle power' countries around the world must come together. Mark Carney also mentioned India in his speech.

Following a meeting on Tuesday between Canadian Energy Minister Tim Houghton and India's Petroleum Minister Hardeep Singh Puri, a joint statement said that Canada would supply more crude oil, liquid natural gas, and petroleum gas to India, while India would supply refined petroleum products to Canada.

Houghton said on Tuesday during the 'India Energy Week' in Goa, 'We see opportunities to work with India. We are now building pipelines to the western coast. We will never use our energy to create pressure. Canada used to supply 98 percent of its energy exports to a single country. We are committed to reducing this dependence.'