Why The India–EU Trade Pact Matters More Than The Moment

India and the European Union (EU) finally sealed the much-vaunted Free Trade Agreement (FTA) earlier this week. The deal which took nearly 18 years to get off the ground gained momentum after US President Donald Trump unleashed a disruptive tariff war on the world. This led to countries scrambling to hedge their bets against America’s unpredictability. “By combining our strengths, we reduce strategic dependencies at a time when trade is increasingly weaponised,” European Commission President Ursula von der Leyen said after the announcement, in a veiled reference to Trump’s assault on global trade. She put a finger on the logic driving the deal and acknowledged that trade is now an instrument of power, and that alliances are conditional.

Her statement reflected the reality of the Trumpian order, where enemies and friends are subjected to public humiliation. The President’s play for Greenland has soured ties with Europe even more. Just days before, at the World Economic Forum (WEF) in Davos, the US President had lashed his North Atlantic Treaty Organization (NATO) allies in a speech filled with taunts and barbs. Canadian Prime Minister Mark Carney’s speech at Davos got a standing ovation as he called out the disrupter by saying “… that the rules based order is fading, that the strong can do what they can, and the weak must suffer what they must.”

Against this background of uncertainty, the India-EU FTA makes perfect sense. As Prime Minister Narendra Modi said that at this time of “profound turbulence” the India-EU partnership “will strengthen stability within the international system”. Both India and the EU are trying to insulate themselves from Trump’s tantrums. India was slapped with 50 per cent tariff by the US—25 per cent for buying Russian oil that Trump claims goes to fuel Moscow’s war in Ukraine. Add to this was the President’s constant claims that he brokered the India-Pakistan ceasefire following Operation Sindoor. Washington’s cosying up to Islamabad and the country’s military chief Field Marshal Asim Munir has revived memories of the time when the US and Pakistan were aligned against India. Meanwhile, the India-US bilateral trade agreement is moving in fits and starts, with New Delhi refusing Washington’s pressure to open its dairy and agriculture sectors.

The FDA signals a recalibration by both Brussels and New Delhi. Europe is hedging against American unpredictability and Chinese dominance, and India is placing itself more firmly in a multipolar economic order where geopolitics now shapes commerce as much as markets do. India like Europe is looking to wean itself away from dependence on China for its manufacturing sector and replace it with alternative supply chains. “The US believes they are the Big Daddy and those they have pressured are coming together. The US treats this with disdain without understanding the full impact,” says Gurjit Singh, a former ambassador of India to Germany.

Washington is watching with irritation. Treasury Secretary Scott Bessent claimed that the EU prioritised trade over the interests of Ukraine. “We have put 25 per cent tariffs on India for buying Russian oil. Guess what happened last week? The Europeans signed a trade deal with India,” Bessent told ABC News in an interview. While US Trade Representative Jamieson Greer said India “comes out on top”, with access to the EU’s massive market and immigration rights for its skilled workers, pointing to the mobility agreement that was signed.

The agreement is being termed as the “mother of all trade deals” by New Delhi and Brussels because it merges two of the world’s largest economic blocs into a single trade zone, covering a population of nearly two billion and the potential of becoming an economic powerhouse in the future.

“The India-EU FTA is a comprehensive agreement, and the bilateral investment treaty and the geographical indicators agreement will round it off perfectly. India has managed to keep off the sensitive sectors like dairy, while the EU has managed a retention of its CBAM (Carbon Border Adjustment Mechanism) provisions,” according to Anil Wadhwa, a former ambassador to Italy and Poland. The CBAM may prove tricky as it is an EU policy designed to put a fair price on carbon emissions from imported goods like cement, iron, steel, aluminum, fertilisers, electricity, and hydrogen.

“The FTA promises advanced growth, but will take up to 2027 for all the ratification rows to be edited and completed. Some of the benefits will kick in after 5-10 years especially for EU,” explains Wadhwa.

The EU will scrap all tariffs on 90 per cent of Indian goods, and within seven years, that will be extended to 93 per cent. Gems and jewellery, marine products, chemicals, plastics and rubber, textiles, apparel, base metals, leather footwear and base metal exporters will get a bonanza as the tariffs have been removed. The EU’s gains include tariffs eliminated or reduced on over 90 per cent of its exports. By this, EU companies will save up to $4.74 billion annually in duties. India’s duties on vehicles imported from the EU will fall from 110 per cent to 10 per cent over five years, under a 250,000 vehicle annual quota, benefiting high-end luxury cars.

While the economic gains may be distant, the signal to Trump is that if he dismantles world trade, countries will be forced to circumvent the US due to strategic compulsion.

Seema Guha is a senior journalist covering foreign affairs.

This article appeared as 'Mother Of All Trade Deals' in the Magazine issue No More A Gentleman's Game dated February 11, 2026 which explores the rise of women's cricket in India, and the stories of numerous women who defeated all odds to make a mark in what has always been a man's ballgame.