Global markets barely had time to digest the announcement that India and the European Union (EU) had sealed their long-delayed free trade agreement when US President Donald Trump, in a characteristically overdone social-media flourish, proclaimed that Washington, too, was on the verge of a “major” trade deal with New Delhi, complete with steep tariff cuts and a surge in American energy sales.
The near-simultaneity was not coincidence but a signal: India is repositioning its trade diplomacy at a moment when tariffs have become tools of power; supply chains, instruments of strategy; and economic alignment, a central axis of geopolitics.
India’s simultaneous pursuit of a comprehensive free-trade agreement with the European Union and a narrowly framed trade understanding with the United States must be read in this light. They are not parallel tracks.
They are intersecting vectors in a strategy aimed at widening India’s room for maneuver in an era defined by American unpredictability, Chinese industrial dominance and the steady erosion of a rule-based order.
At one level, the advantages of India’s FTA with the EU and its deal with the US appear straightforward. Preferential access to two of the world’s richest markets could potentially lift exports, lower input costs and attract investment.
But the deeper gains lie elsewhere. Together, these arrangements alter India’s economic bargaining position, reduce its vulnerability to any single power and embed it more firmly into multiple production ecosystems.
The EU agreement offers India something the US cannot: institutionalised predictability. Brussels moves slowly – often frustratingly so – but, once commitments are embedded in legal text, they tend to endure.
For Indian exporters, especially in engineering goods, pharmaceuticals, auto components, textiles, chemicals and electronics, this matters more than headline tariff cuts. It allows firms to plan capacity, commit capital and cultivate long-term buyer relationships.
The EU market is not merely large; it is stable, rules-bound, and diversified across multiple economies with different consumption patterns. That diversity cushions Indian exporters from sudden political shocks emanating from any single European capital.
The US deal, by contrast, is less about permanence and more about a level of strategic maneuvering. The US remains the world’s top demand taker. Ergo, it’s unavoidable. It’s a deal, not an FTA.
Even a modest reduction in punitive tariffs restores a measure of competitiveness vis-à-vis Southeast Asian peers. It keeps India present in critical US-facing value chains in pharmaceuticals, machinery, electrical equipment and gems and jewelry. It also reinforces India’s role as a significant buyer of American energy, aircraft, military and high-technology goods.
The advantage here is tactical rather than structural: it buys time and space while India builds alternative growth engines.
Taken together, the two tracks generate a form of strategic triangulation. India is no longer negotiating with Washington from a position of relative isolation. The EU FTA and the others that have been signed over the past year signal that New Delhi has options. That changes the psychology of negotiations. It does not make India immune to pressure, but it raises the cost of coercion.
Triangular effects
The impact on the EU of India’s deal with the US is subtle but real. Brussels has long worried that its firms could be squeezed out of fast-growing Asian markets if Washington secured preferential terms that Europeans lacked. A limited India-US arrangement reduces that asymmetry. It reassures EU policymakers that India is not drifting into an exclusive economic orbit around the US.
At the same time, it underscores to Europe the urgency of making operational its own agreement with India. The faster European firms can lock in preferential access, the less exposed they are to sudden shifts in US-India trade dynamics.
There is also a competitive undercurrent. European exporters in sectors such as machinery, chemicals and aircraft do not want to see American rivals gain an edge in India through tariff concessions or regulatory carve-outs. The existence of an India-US deal sharpens Brussels’ focus on ensuring that its own agreement is commercially meaningful rather than merely symbolic.
Conversely, the impact on the US of India’s FTA with the EU is more strategic than commercial. Washington has increasingly framed trade through the lens of rivalry with China, or though Trump’s misguided perception of how trade deficits work. Washington wants partners that can absorb production shifting out of China and that will align, at least partially, with its de-risking agenda. It wants partners willing to invest in its domestic economy and buy more American goods.
India’s deepening integration with the EU complicates this picture. It signals that New Delhi is pursuing a multi-aligned economic strategy rather than slotting neatly into an American-led bloc.
For US policymakers, this is a mixed outcome. On the one hand, a stronger India integrated into European value chains is a more resilient partner and a potential counterweight to China. On the other hand, it dilutes Washington’s leverage.
If India can offset US market volatility with European demand, American threats lose some of their sting. In practical terms, this makes any India-US deal more likely to be incremental, conditional, and subject to frequent renegotiation.
China’s chains
The most complex dimension in this triangular relationship is China’s centrality to India’s value chains. Data from regional value-chain analysis illustrate an uncomfortable reality: A significant share of the foreign value added embedded in India’s exports, including exports destined for the US, originates in the Asia-Pacific, with China a major contributor.
In chemicals, machinery, electronics, and other manufacturing segments, Chinese inputs remain deeply woven into India’s production fabric.
For instance, the ESCAP Regional Integration and Value Chains Analyzer (RIVA) shows that, in 2024, 56.9% of India’s foreign value added embedded in chemicals exports to the US and the EU was sourced from the Asia-Pacific, up by 9.1 percentage points since 2021. China alone accounted for 13.7% of the foreign value added embedded in India’s chemicals exports.
For Washington, this creates a paradox. Tariff concessions to India are intended to encourage diversification away from China. Yet if Indian exports to the US embody substantial Chinese content, those concessions indirectly sustain Chinese upstream suppliers.
For the EU, this value chain reality cuts both ways. European firms are acutely aware of their own dependence on Chinese inputs and see India as a potential second pillar. But they also recognize that India’s industrial ascent will, at least for the foreseeable future, be partially underwritten by Chinese intermediates.
The pragmatic response is not to demand instant decoupling but to encourage gradual diversification through investment, technology transfer and joint ventures.
For India, China’s embeddedness is both a constraint and a source of leverage. It constrains New Delhi’s ability to align fully with any external decoupling agenda. But it also allows India to argue credibly for sequencing. Abrupt severance from Chinese inputs would raise costs, undermine competitiveness, and jeopardise export growth. A phased approach, supported by European and American investment in alternative supply chains, is the only economically viable path.
This value-chain reality shapes how India’s deals with the EU and the US interact. They are less about sudden geopolitical realignments and more about nudging the structure of production over time. Each additional European machine tool factory in India, each American semiconductor-related investment, marginally reduces China’s share in Indian manufacturing. The effect is cumulative, not revolutionary.
Trumpian risk
Energy sits at the core of the India-US understanding and has important spillovers for Europe. Washington’s attempt to link tariff relief to changes in India’s oil sourcing is a form of conditional economic coercion. India imports nearly 90 percent of its crude oil.
Over the past four years, India’s purchase of discounted Russian barrels has played a crucial role in cushioning domestic inflation and stabilizing global oil markets. From Europe’s perspective, any significant Indian shift away from Russian crude could tighten global supply and push prices higher, with direct consequences for European consumers and industry.
At the same time, Europe has its own interest in reducing Russia’s energy revenues. This creates a delicate balancing act for both the EU and India.
Washington has tried to convert this reality into coercive leverage. Its negotiators have pressed New Delhi to curb purchases from sanctioned Russian producers and replace them with supplies from the US and other sources, effectively tying tariff concessions to changes in India’s third-country energy relationships.
India’s massive refining system has been engineered over decades to handle heavier, more sulphurous grades. Commercial realities also intrude. Russian barrels are competitively priced and well matched to Indian refinery configurations. American crude is lighter and produces fewer of the middle distillates that India produces at global scale, while shipping distances add to landed costs.
Alternatives from Latin America and West Africa exist, but supply is finite. Venezuela is not yet a real alternative with production constraints.
For India, the oil issue is treacherous terrain. Outcomes will hinge partly on how the war in Ukraine evolves and on the shifting calculations of Trump and Vladimir Putin. Europe lacks the means to impose a Ukraine settlement. China is playing its own strategic game. Russian oil revenues, meanwhile, remain central to any external pressure on Moscow.
New Delhi is therefore reframing its oil policy around diversification rather than rupture. The roster of supplier countries has expanded sharply, with US, Brazilian, Guyanese and African grades gaining ground. The likely outcome is a marginal trimming of Russian oil volumes, signaling accommodation to Washington while preserving strategic flexibility.
A sudden displacement of one million to two million barrels per day of Russian heavy crude could jolt prices upward in an already tight market. India’s task is to safeguard energy security through commercial pragmatism, not geopolitical compulsion.
The risk that hangs over all these carefully calibrated moves is the personality of the current US president. Trade policy under Donald Trump has repeatedly shown itself to be personal, transactional and prone to abrupt reversals. Agreements are not endpoints but waypoints, vulnerable to reinterpretation whenever political incentives shift or ego comes into play.
Trump could still derail an India-US trade deal in several ways. He could declare that concessions committed to are insufficient and demand more. He could link trade to unrelated geopolitical issues, from defense spending to diplomatic positions on third countries. He could simply lose interest and allow punitive tariffs to snap back as a demonstration to his domestic base of his toughness.
This unpredictability is precisely why India has accelerated engagement with the EU and other partners. Diversification is not ideological. It is insurance. The more alternative markets India cultivates, the less catastrophic any single rupture becomes.
Yet, diversification has its own limits. India cannot replace its US market, just as it cannot substitute Europe for China as a source of intermediates in the short-and-medium term. The strategy is therefore one of layered hedging rather than decisive pivoting. Each agreement adds a strand to a web of relationships that collectively enhances resilience.
In this sense, the real advantage for India is not any single tariff line or quota expansion. It is the ability to say, credibly, that its economic future does not hinge on the goodwill of any one power. For Europe, the advantage lies in anchoring a major Asian power into a web of interdependence that dilutes both Chinese dominance and American unilateralism. For the US, the challenge is to recognize that a partnership with India is vital and cannot be sustained through coercion alone.
The coming years will test whether these delicate balances can be maintained. But the direction is clear. India is no longer a passive recipient of trade rules shaped elsewhere. It is using trade as a strategic tool, stitching together relationships that collectively expand its choices in an increasingly unforgiving world.