India Pushes for EU Trade Deal as US Tariff Pressures Mount
As US tariffs bite, India is hedging its bets, fast-tracking the EU deal to anchor exports in a more predictable trade orbit and signal it's no longer playing by Washington’s rules alone.
India’s decade-long pursuit of a free trade agreement (FTA) with the European Union has entered its most critical phase yet. As of early January, Commerce Minister Piyush Goyal is in Brussels for a final round of ministerial-level negotiations aimed at closing the last mile gaps with the EU. This diplomatic push, scheduled just ahead of Republic Day (January 26, 2026) celebrations where EU Commission President Ursula von der Leyen is set to be Chief Guest, signals that both sides are eyeing a politically symbolic announcement to mark the deal’s conclusion. The urgency is no longer just about improving market access to Europe. The underlying driver is a sharp deterioration in India’s trade relationship with the United States, triggered by the return of Donald Trump to the White House and a reversion to aggressive tariff policy.
A Strategic Realignment
Since August 2025, the US has doubled import duties on Indian exports to 50%, citing India’s continued oil trade with Russia. The threat of even steeper tariffs—possibly up to 500%—has cast a long shadow over Indian exporters. While New Delhi has made tactical adjustments, including weekly disclosures of Russian crude purchases and capping import volumes, the political tone from Washington has hardened.
In this context, the EU FTA represents more than just a trade agreement—it is now a strategic hedge. For Indian policymakers, it offers a route to rebalance trade dependencies, lock in preferential access to a US$ 18trn economy, and reduce vulnerability to the whims of American protectionism.
The Contentious Pillars of Negotiation
Progress in Brussels hinges on a handful of complex trade-offs. European negotiators are pressing for duty reductions on automobiles, with tariffs on European cars currently exceeding 60% in India. In response, Indian officials are offering phased tariff reductions—especially for fully assembled electric and premium vehicles. Agricultural exports, another sensitive area, have faced EU barriers over sanitary and phytosanitary (SPS) standards. India is pushing for regulatory harmonisation and simplified documentation procedures. Meanwhile, Brussels’ Carbon Border Adjustment Mechanism (CBAM)—which imposes carbon-linked levies on imports—has prompted India to seek carve-outs or extended transition periods for its small and medium-sized exporters. Perhaps the most politically consequential aspect is investment protection. India has agreed to fast-track a bilateral Investment Protection Agreement alongside the FTA, aiming to ease concerns of European investors long frustrated by policy unpredictability and weak legal safeguards.
An FTA Anchored in Rules-Based Multilateralism
The EU-India FTA would mark New Delhi’s most comprehensive trade deal with a developed economy, offering Indian exporters deeper access to a large, stable, and rules-based market. For India, which has often been wary of opening up due to fears of import surges, the EU deal is a conscious departure, a bet on long-term competitiveness rather than short-term protection. Equally, it’s a diplomatic play to signal that India can build trade alliances based on predictability and institutional reciprocity, qualities that have come under strain in its US relationship.
A Broader Recalibration of India’s Trade Policy
The government is now accelerating a broader slate of trade negotiations—including FTAs with the UK, EFTA, and the Gulf Cooperation Council—as it seeks to create a diversified export base and reduce exposure to singular geopolitical shocks. While the US remains India’s largest individual export destination, the volatility in Washington’s trade posture has injected a new realism in Indian policy circles. Even if India and the US manage to contain tariff tensions in 2026, the ongoing shift in Indian trade strategy is likely to endure. For India’s external sector, the EU agreement—if concluded in the coming weeks—would be a defining moment: a pivot away from transactionalism, towards long-term strategic alignment. Meanwhile, the prospects of a trade deal with the US remain slim for the first half of 2026. The earliest easing of tariffs is Q3-2026, assuming 500% tariffs are not imposed.