India–EU Trade Deal Gains Momentum Amid U.S. Tensions, but Washington Pact Remains Crucial

Geopolitical tensions were front and center at the World Economic Forum in Davos, where European Commission President Ursula von der Leyen said the European Union is on the cusp of a historic trade agreement with India. The push reflects Europe’s search for new trade partners as relations with the U.S. strain under renewed tariff threats and broader diplomatic disputes.

For India, the talks come at a critical juncture. Since U.S. President Donald Trump imposed steep tariffs on Indian goods last year, New Delhi has accelerated efforts to diversify export markets. Recent agreements with the UK, Oman and New Zealand — alongside a pledge with the United Arab Emirates to double bilateral trade to more than $200 billion by 2032 — underline that strategy.

Trade between India and the EU already exceeds €120 billion annually, making the bloc New Delhi’s largest trading partner by volume. India’s main exports to Europe include machinery, chemicals, base metals and textiles. Even so, economists caution that sensitive sectors such as steel, automobiles and agriculture may be excluded or handled separately in any initial agreement.

Despite its scale, an India–EU pact is unlikely to replace the United States as India’s top export destination. India’s trade surplus with the U.S. is significantly larger than with Europe, highlighting how dependent New Delhi remains on American demand. Analysts describe the EU deal as a “shock absorber” — helpful in easing tariff pain and restoring leverage, but insufficient on its own.

The absence of a comprehensive India–U.S. trade deal continues to weigh on markets. Conflicting signals from U.S. officials about stalled negotiations have added uncertainty, while volatile exports have pressured the Indian rupee. Economists say progress with Europe could stabilize expectations, but a durable boost to growth and currency confidence still hinges on a breakthrough with Washington.

In sum, the prospective India–EU agreement would mark a major milestone and reflect shifting global trade dynamics. Yet for New Delhi, it complements rather than substitutes the elusive pact with the United States — a deal that remains central to India’s long-term economic trajectory.