How US tariffs fuel the EU India trade pact: EU and India are planning new trade routes

Published on: March 3, 2025 / update from: March 3, 2025 - Author: Konrad Wolfenstein

How US tariffs fuel the EU India trade pact: EU and India are planning new trade routes-Image: Xpert.digital

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The European Union and India announced at the end of February 2025 that they want to conclude a comprehensive free trade agreement this year. This project is in a complex international context in which the United States play an important, albeit indirect role. The latest developments in American trade policy and the geopolitical shifts under the Trump administration have made a significant contribution to driving the EU and India ahead with new dynamics.

Trade -policy tensions with the USA as a catalyst

The tariffs threatened by US President Donald Trump against numerous countries, including the EU and India, have worked as an essential catalyst for the intensified negotiations between Brussels and Neu-Delhi. On her visit to the Indian capital, EU Commission President Ursula von der Leyen spoke of the fact that "the geopolitical circumstances require decisive action"-a clear allusion to the United States' trade policy. The announcement of punitive tariffs of 25 percent against the EU triggered concern in Brussels and accelerated the search for alternative trading partners.

Since Donald Trump's re-election to the US President, the EU has significantly strengthened its efforts to deal with trade agreements with third countries. In addition to the negotiations with India, the European Union has already made agreements with the Mercosur countries in South America as well as Mexico and Malaysia. This diversification strategy is a direct response to the United States' departure from its traditional trading partners and the resulting uncertainty in the international trading system.

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The USA as a geopolitical factor

The increasing turnaround of the United States from its European allies under the Trump administration has led to the EU also looking for new partners on security policy issues. Against this background, the EU is now examining the possibility of a security and defense partnership with India. During her visit to Neu-Delhi, from the Leyen said: "I can announce that we will check a future security and defense partnership with India based on the model of partnerships with Japan and South Korea".

This development illustrates how the changed American foreign policy not only has direct trade policy consequences, but also indirectly restructured the strategic alliances and partnerships in international politics. In view of the uncertain transatlantic relationships, the EU is looking for alternatives to protect its economic and security policy interests.

Competition in the Indian market

In the competition for the increasingly important Indian market, the EU is in direct competition with the USA. The European Union is currently the largest trading partner - still before the USA and China. The bilateral trade between the EU and India reached 120 billion euros in value last year. A successful free trade agreement would further expand this lead and strengthen the competitive position of European companies compared to American competitors.

India's economic importance is growing steadily. For the years 2023 and 2024, the International Monetary Fund and the Asian development bank predict high economic growth rates of over 6 percent for India - significantly higher than the expected growth rates of China. This dynamic makes the Indian market a strategically important goal of its trade policy for both the EU and the USA.

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The United States in the triangular relationship with China and India

Another important aspect of the American role in the context of the EU-India-free trade agreement is the position of the United States in relation to China. The EU hopes to be able to counter "the growing influence of China in the Asian-Pacific area through better relationships with India". The EU shares this goal with the United States, which also try to counteract China's growing influence in the region.

The concerns of the USA articulated by “China's non -market complaints” and criticism of Chinese industrial policy are also reflected in European positions. Both the EU and the United States endeavor to develop alternatives to China, especially in strategic areas such as the “structure of resistant supply chains and the regulation of new technologies, including artificial intelligence”.

Commercial policy divergences between the USA and the EU

The relationships between the USA and the EU are not only characterized by joint competition with China, but also by their own tensions. The United States' National Trade Estimate Report on Foreign Trade Barriers ”criticizes numerous EU trade barriers, including technical standards, regulations on intellectual property and restrictions in digital trade.

These divergences are also evident in the different approach to trade policy. While the United States is increasingly relying on unilateral measures and punitive tariffs under the current administration, the EU continues to pursue a multilateral approach with the conclusion of extensive free trade agreements. These different strategies also influence the respective relationships with India.

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Effects on global trade architecture

The trade conflicts and the reactions of the EU and other trading partners from the United States have potentially far -reaching effects on global trade architecture. The intensification of relationships between the EU and India can be seen as part of a broader realignment of the international trading system in which regional and bilateral agreements are becoming more important, while multilateral institutions such as the world trade organization (WTO) come under pressure.

In this context, the German economy emphasizes the importance of a “constructive role of India for the WTO reform”, since “over half of the EU outer trade are only secured by WTO rules, including trade with India”. In view of the “erosion of WTO dispute settlement”, bilateral agreements with “enforceable agreements” are viewed as an important source of “planning security for the German economy”.

The United States as an indirect driver of the EU India

In summary, it can be stated that the United States plays an important, albeit mostly indirect role in the context of the EU India Free Trade Agreement. The Protectionist trade policy pursued by the Trump administration and the threat of punitive tariffs have worked as an essential catalyst for accelerated rapprochement between the EU and India. This development is part of a more comprehensive reorganization of international trade relationships, in which both the EU and India try to protect its economic interests in an increasingly insecure global environment.

The desired free trade agreement between the EU and India, which, according to the EU Commission President of Leyen, “the largest of this kind in the world” could not only strengthen bilateral economic relationships, but also a significant signal for the future of international trade policy in a time of growing protectionist tendencies.

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