India Races to Seal EU Trade Deal as Trump’s Tariff Blitz Threatens Economy

India and the EU have resumed FTA negotiations in Brussels to counter mounting U.S. tariff pressures, with Washington demanding significant tariff reductions and Trump setting an April 2 deadline for concessions. The EU is pushing India to lower duties on dairy, wine, and automobiles, while the U.S. is pressuring for broader tariff cuts and GST revisions. India faces the challenge of balancing U.S. demands while protecting domestic industries, particularly as the U.S.-India Bilateral Trade Agreement aims for $500 billion in trade by 2030.

Key sectors like pharmaceuticals, IT, and textiles could suffer if U.S. trade terms become unfavorable. To mitigate risks, India is expanding trade ties with the EU, Australia, and ASEAN. While lower tariffs could benefit consumers, they may also hurt small and medium enterprises, prompting the government to explore tax breaks and industry incentives. Defense deals with the U.S. could serve as a bargaining tool, but India must carefully navigate trade policies to sustain economic growth without becoming overly dependent on any single partner.

India Races to Seal EU Trade Deal as Trump’s Tariff Blitz Threatens Economy

India and the European Union have resumed crucial negotiations on a Free Trade Agreement (FTA) in Brussels, with both sides working to mitigate the impact of former U.S. President Donald Trump’s aggressive push for tariff reductions.

As Washington pressures New Delhi to slash import duties, India faces one of its most significant trade policy shifts in recent history. Prime Minister Narendra Modi and European Commission President Ursula von der Leyen have committed to finalizing the FTA by the end of the year, positioning the EU as a key economic partner to counterbalance U.S. demands.

European negotiators are particularly focused on persuading India to lower tariffs on dairy products, wine, and automobiles. European winemakers are pushing for a reduction in India’s steep 150% tariff on imported wines to around 30-40%, while automakers such as BMW and Mercedes-Benz want import duties on fully built-up (CBU) vehicles reduced from 100-125% to a much lower 10-20%.

Meanwhile, Trump has been vocal about his dissatisfaction with India’s tariffs, calling them “massive” and “unfair.” He recently claimed that India had already agreed to reduce duties and set an April 2 deadline for reciprocal tariff cuts on countries he deems to have unfair trade practices.

U.S. Trade Pressure and India’s Strategic Response

The U.S. is pushing for India to bring tariffs down to zero or near-zero levels in most sectors, excluding agriculture. Currently, India’s average tariff on American imports is around 12%, significantly higher than the U.S. average of 2.2% on Indian goods. Washington has also raised concerns about India’s Goods and Services Tax (GST), arguing that it unfairly affects American exporters, particularly in sectors like medical devices and electronics.

India, however, is treading carefully. Commerce Minister Piyush Goyal is in talks with the U.S. about a broader Bilateral Trade Agreement (BTA) to ease tariff and non-tariff barriers while ensuring India’s domestic industries are protected. Experts caution that conceding too much could destabilize local industries, but resisting U.S. demands entirely might damage India’s crucial trade ties.

To navigate this challenge, India and the U.S. have outlined a phased approach to trade negotiations, aiming for a mutual trade volume of $500 billion by 2030. U.S. Commerce Secretary Howard Lutnick has emphasized the need for a comprehensive deal rather than a product-by-product approach, advocating for deeper economic integration between the two nations.

Risks and Potential Trade-Offs

India’s trade relationship with the U.S. is significant, with nearly 18% of Indian exports destined for American markets. This reliance gives Washington leverage, particularly as India depends on U.S. technology and energy imports. If Trump imposes retaliatory tariffs or withdraws trade privileges, Indian industries—especially pharmaceuticals, textiles, and IT services—could suffer severe consequences.

At the same time, India sees the FTA negotiations with the EU as a crucial strategy to diversify its trade partnerships and reduce reliance on the U.S. However, making major tariff concessions could have domestic repercussions. Reducing import duties might benefit consumers by lowering prices on products such as electronics and luxury goods, but it could also hurt Indian manufacturers, particularly small and medium-sized enterprises (SMEs) that may struggle to compete with an influx of cheaper foreign goods.

Moreover, cutting tariffs would impact government revenue, potentially affecting public spending and welfare programs. Sectors such as agriculture, textiles, and electronics, which are heavily protected by tariffs, could face job losses unless the government introduces measures like tax breaks and industry incentives.

India’s Next Steps

Given the high stakes, India is likely to adopt a sector-specific approach—offering selective tariff reductions while protecting critical industries. The government is also exploring ways to bolster domestic manufacturing through initiatives like “Make in India” and incentives to support local businesses.

Additionally, India is expanding trade ties with the EU, Australia, and Southeast Asian nations to reduce its dependence on the U.S. There is also speculation that India could use defense contracts as a bargaining chip, as Washington is keen for India to shift its arms purchases away from Russia.

With India striving to become a $5-trillion economy, these trade negotiations will have far-reaching consequences. The challenge for New Delhi is to strike a balance—maintaining a strong economic relationship with the U.S. while protecting domestic interests and securing alternative trade avenues with other global partners.

For now, Indian businesses remain on edge, bracing for potential shifts in trade policy that could reshape the country’s economic landscape.