India-EU Strike Historic Trade Deal Amid Trump's Tariff Threats

A 2-billion-person free trade zone just came into existence. India and the European Union have announced a historic trade agreement after nearly two decades of on-and-off negotiations, creating what officials are calling the "mother of all deals."

"Europe and India are making history today," European Commission President Ursula von der Leyen posted on X Tuesday, as she and European Council President António Costa met with Indian Prime Minister Narendra Modi in Delhi for a bilateral summit.

Trump's Tariff Pressure Creates Unlikely Alliance

The timing isn't coincidental. Both India and the EU are grappling with economic pressure from the US, making this partnership as much about geopolitics as trade. India is struggling under 50% tariffs imposed by President Donald Trump last year, while talks for a US-India trade deal remain stalled.

Meanwhile, Trump recently threatened to escalate his trade war with European allies over their opposition to a US takeover of Greenland before backing down. This broader context shaped the leaders' messaging around the deal.

Costa made the subtext explicit, saying the agreement would send an "important political message to the world that India and the EU believe more in trade agreements than in tariffs" at a time when protectionism is rising and "some countries have decided to increase tariffs."

A Quarter of Global GDP Under One Agreement

The numbers are staggering. The EU is already India's largest trading partner, with bilateral merchandise trade reaching $136 billion in 2024-25—nearly doubling over the past decade. Modi called it "a perfect example of a partnership between two major economies," representing 25% of global GDP and one-third of global trade.

The deal will expand market access for Indian exports to Europe while easing entry for European investments and goods—particularly cars and beverages—into Asia's third-largest economy. For European automakers, this could be a game-changer in competing with established players in India's massive market.

The Long Road to Yes

This wasn't an overnight success. Talks began in 2007 but stalled in 2013 over disagreements on market access and regulatory demands. The main sticking points included access to India's automobile market, agricultural goods, and carbon-linked tariffs—issues that analysts will be scrutinizing in the final agreement.

Formal discussions only restarted in July 2022, with officials from both sides working intensively over recent days to finalize outstanding chapters before the EU leaders' visit. The formal signing will likely occur later this year, pending approval from the European Parliament and Council.

Strategic Implications Beyond Trade

This agreement reflects a broader shift in global trade patterns. India has been on a deal-making spree, signing major trade agreements with the UK, Oman, and New Zealand over the past seven months, while a 2024 pact with the European Free Trade Association has already taken effect.

The EU, meanwhile, recently concluded a trade deal with South American trade bloc Mercosur after 25 years of negotiation. Both sides are clearly seeking to diversify their economic partnerships as US trade policy becomes increasingly unpredictable.