The making of the India–EU trade deal

Donald Trump’s presidency marked a break from the post-World War II free-trade consensus. His aggressive use of high tariffs, trade wars (especially with China and the EU) and “America First” industrial policy sent a clear message: trade is no longer neutral; it is strategic leverage. This environment created a strong incentive for India and the EU to reduce overdependence on the US and China by deepening ties with each other. For Europe, Trump’s tariffs were a wake-up call. The EU faced pressure from both sides: US tariffs and regulatory pressure and China’s dominance of supply chains, coupled with strategic distrust. Now India has emerged as the ideal alternative partnerbecause of its large market, democratic system, rule-based governance and non-adversarial geopolitical posture. Crucially, India does not threaten Europe’s core industrial base the way China does. This made the EU more pragmatic and flexible in negotiations where earlier it had been rigid on issues like data, labour, and sustainability timelines. India’s pragmatism coupled with globalisation vision and not isolation helped finalise this deal. Indeed, India, too, learned from Trump’s tariff-centric world comprising blind globalisation creating vulnerabilities. It was clear that market access must be reciprocal and strategic and trade agreements should support domestic manufacturing and jobs. Instead of pursuing blanket free trade, India adopted a calibrated approachto protect sensitive sectors, liberalise where India is competitive and use FTAs as tools for strategic alignment The EU deal reflects this pragmatism and provides deep liberalisation where India gains exports and services access, gradual, phased opening where domestic industry needs time and clear safeguards against import surges A key reason this deal succeeded is that India and the EU sell fundamentally different things. The EU sells capital-intensive goods, high-end machinery and equipment, precision engineering, automobiles and auto components and chemicals, medical devices, green technologies. These are technology- and capital-heavy sectors, not labour-intensive ones. What India sells is labour-intensive manufactured goods (textiles, apparel, leather), pharmaceuticals and generics, IT and digital services, engineering goods and processed food and marine exports. These sectors do not displace European workers. Instead, they lower costs for European consumers, support EU industries through affordable inputs and fill skill and labour gaps in services. This non-overlapping export profile is why the deal is politically acceptable on both sides. To add to this, Trump’s tariffs made complementarity valuable. In a tariff-heavy world, countries avoid partners that directly undercut domestic industries and complementarity becomes more important than competition. Indeed, India and the EU fit perfectly because EU firms gain access to India’s growing consumer base, India gains access to high-income European markets and neither side fears industrial hollowing-out