On Tuesday, the world’s largest trading bloc and the world’s most populous country cinched a deal that will slash or reduce tariffs on the vast majority of the products they trade. If approved by the European Parliament and the Indian cabinet, the deal will cut duties on nearly 97% of EU exports to India, while the EU will grant preferential access to 99% of Indian exports.
The deal is huge. European Commission President Ursula von der Leyen dubbed it the “mother of all trade deals.” Aside from the scale of the two parties involved, it marks yet another trade agreement since US President Donald Trump returned to office that has been struck between two “middle powers” – a term that appears to be gaining popularity. The latest agreement follows the EU’s deal with the South American trading bloc Mercosur, reached a few weeks ago, as well as India’s recent pacts with the UK, Oman, and New Zealand.
“With this, India now has got all of its major trading areas sealed up, except for China and the United States,” said Eurasia Group’s South Asia expert Pramit Pal Chaudhuri. He added that the deal opens India up to more European investment, boosts Indian textile firms, and theoretically gives them – and Europe – leverage when dealing with the United States.
This deal won’t necessarily bring economic benefits in the short run, according to Grégoire Roos, Europe director at the London-based think tank Chatham House. Given India’s expected growth over the coming decades, though, it will bring some in the long term.
“For the EU, which is ageing and growth-constrained, this is strategic plugging into future demand,” Roos told GZERO. “In a way, this trade deal buys the EU a seat at the table of tomorrow’s economy.”
What pushed it over the line? The two sides had been hammering out the deal for nearly 20 years, but negotiations stalled when Europe demanded that non-trade terms be included, such as sustainability measures and labor protections. The two sides didn’t speak about the deal for nine years.
But then Trump returned to office and started announcing tariffs on virtually all of the US’s trading partners. He was particularly heavy-handed with New Delhi and Brussels. In India’s case, he slapped 50% tariffs on its imports, half of which was a penalty for the country’s refusal to stop buying Russian oil. With the EU, punishingly high tariffs pushed the bloc to agree to a deal critics called uneven.
“The US weaponised tariffs, prioritised domestic reshoring, and used trade as leverage rather than integration,” said Roos. “That actually made the EU look like the adult-in-the-room trade partner. India did notice.”
The Trump factor, according to Chaudhuri, made India and the EU “willing to make concessions that they wouldn’t have even considered in a pre-Trump era.” Europe agreed to omit many of the non-trade terms it had initially desired, while India allowed the deal to move forward without an agreement on some agricultural products.
Where does their foreign policy move going forward? In recent decades, India has had a policy of non-alignment, refusing to hew itself too closely to any one power. But Delhi may have amended that strategy since Trump returned to the White House, focusing on building links outside the two leading global powers. Just two days before he did, India’s foreign minister S. Jaishankar gave a speech in Mumbai that was eerily similar to the one Carney delivered last week.
“In a world that is less forthcoming on commitments, India also recognizes the role of middle powers,” said Jaishankar, while highlighting that India’s relationship with the US and China has become more challenging.
For Europe, this marks yet another step away from the United States, according to Eurasia Group’s Managing Director of Europe, Mujtaba Rahman. The trading bloc suspended approval of its deal with the US after Trump upped his threats to take Greenland. The two sides have grown increasingly distant in their stance on Ukraine. The Board of Peace, initially formed to oversee the future governance of Gaza, now includes Russian President Vladimir Putin but not the US’s longstanding allies in Western Europe.
Instead, the EU is looking elsewhere for trade: on Thursday, it upgraded its relationship with Vietnam, its fourth-largest trading partner.
“Last year, the EU clearly made a conscious decision to de-risk itself from its dependence on American security,” said Rahman. “An effort is now underway to better bolster its trading relations [elsewhere] as well.”
