Trade over tariffs | India and EU chart independent path amid US pressure

Trump’s tariff offensive has pushed India and the EU closer, accelerating talks for a strategic trade agreement

With headlines over the past few months dominated by those of United States President Donald Trump and tariffs, the relationship between India and the European Union (EU) has not received sufficient attention. What is often overlooked in the tumult over US tariffs is that bilateral goods trade with the EU is approximately $137.5 billion annually, which exceeds the $131.8 billion with the US. The EU is, thus, India’s biggest trading partner.

The importance of trade ties with the world’s most powerful economic bloc is now gradually becoming recognised as the proposed India-EU free trade deal is on the verge of being concluded. The latest visit of two EU commissioners to iron out the nitty-gritty of the agreement has even prompted Commerce Minister Piyush Goyal to raise prospects of the trade pact becoming a win-win scenario.

It is just as negotiations between the two sides have reached the last lap that the Trump administration decided to launch a harangue against Europe about the need to impose hefty tariffs on both India and China. These are positioned as economic sanctions that would weaken the Russian economy and lead to a speedy resolution of the Ukraine conflict. It began with Trump urging the imposition of tariffs ranging from 50% to 100% on the two biggest buyers of Russian oil at a meeting between officials from the US and the EU. US Treasury Secretary Scott Bessent urged the Group of Seven advanced economies to impose punitive tariffs in response to these countries’ purchases of Russian oil.

This was followed up by Trump claiming that much had been done to punish Moscow, including expanded tariffs on India, while arguing this was a European rather than US problem. He then called on NATO countries to levy 100% tariffs on China.

In other words, Trump is hammering the fact that the Ukraine-Russia conflict is Europe’s war, and secondary sanctions on India and China are the only way to bring it to a quick end. The decibel levels may be rising from the US, but the EU is clearly adopting an independent stance. It has not voiced any preference to use tariffs as secondary sanctions to end the war. Instead, it seems to be looking for ways to reduce dependence on Russian energy. Till such reliance continues, it would be difficult to legitimately impose any punitive measures against the two Asian trade partners.

This brings us to the reality of the EU-Russia economic ties, which has continued even after four years of the Ukraine war. Bilateral trade was estimated at $78.1 billion in 2024, with the bulk of the EU’s imports being fuel. Russian gas imports may have fallen considerably, but they are yet to be completely stopped. The EU’s imports of Russian natural gas are reported to have fallen from 40% of its total requirements to about 19%, including imports of liquefied natural gas (LNG). At this level of trade, criticising India for buying Russian energy can only be termed as an obvious case of double standards.

Trump’s fulminations are, thus, unlikely to have an impact on the contours of the India-EU free trade deal. In fact, there has been an urgency on both sides to conclude the agreement as a foil to Trump’s tariff offensives. Both India and the EU are looking to pivot away from the US market, which has been the biggest global consumer. With 50% tariffs having been imposed by the US on Indian imports, Indian exporters are scrambling to find alternative destinations. Similarly, the EU sees the potential of the growing middle class in India as a fast-expanding area of consumption to absorb its products.

Both sides, therefore, are carrying out the talks with renewed vigour in a spirit of greater flexibility and compromise than in the past. Negotiations for a free trade pact began in 2007 and stalled in 2013. These were revived in 2022. India’s earlier rigidity on market access for wines, spirits, and automobiles is reported to have eased, while the EU is softening terms for the entry of labour-intensive products as well as fisheries, which have been impacted by the Trump tariffs.

The drive to rapidly tie up the India-EU trade pact has much to do with the external headwinds both sides face. Though the EU has concluded a trade agreement with the US, it has had to make concessions in terms of offering sizable investments. Europe is now seeking to shift focus to an economy that is currently the fastest-growing in the world. India is equally looking for newer export markets to cushion the impact of US tariffs.

In this backdrop, the India-EU trade deal looks set to become a game-changer for both sides.

Sushma Ramachandran is a senior journalist.

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.