American foreign policy, economic diplomacy and the new tariff regime have brought about rapid changes not only geopolitically, but also geo-economically.

Existing economic groupings and agreements are fading, while new ones are emerging. The new trade agreement between the EU and India can also be viewed from this perspective, coming just a few days after the signing of the EU-MERCOSUR trade agreement. However, trade agreements are not merely technocratic documents; they are also political events that can trigger identity debates, mobilize protests and reshape party competition in many European countries. The agreement with India arises precisely within this new political climate and attempts to respond to it.

This historic free trade agreement significantly reduces tariffs on most goods traded between the two economies, removing obstacles that had paralyzed negotiations for nearly two decades. Unlike the Mercosur agreement, it does not revolve around the explosive symbolism of the Amazon or fears of massive agricultural competition. On the contrary, it has been constructed with greater caution. Agriculture remains largely protected, and the benefits of the agreement are framed in terms of industry, jobs, investment and the security of supply chains. In this sense, it is a new-generation agreement, shaped less by the ideology of free trade and more by the geopolitical logic of the 2020s.

The agreement is regarded by both sides not only as an economic success but as a strategic turning point—a document that brings Europe closer to India, one of the fastest-growing economies, at a time when the global economy is being reshaped by rivalries, uncertainty and geopolitical competition.

For European policymakers, this is more than a trade deal. It is a message. Brussels is eager to demonstrate that it can still act as a global player capable of building alliances, expanding markets and providing strategic alternatives. European Commission President Ursula von der Leyen described the deal as “the mother of all deals,” a phrase that was not chosen by chance.

EU-INDIA DEAL, WHY NOW?

The main question remains: Why was this compromise possible now, after so many years of discussions and setbacks? The answer is that the world economy has changed. The era when trade was primarily about efficiency and consumer prices is over. Today, trade is about security, influence and power.

For Europe, the pandemic exposed a painful reality. Economies that once appeared modern and diversified were dependent on fragile supply chains for essential goods. The war in Ukraine reinforced this fact by demonstrating that interdependence can be weaponized, especially in energy and raw materials. Meanwhile, the growing US-China rivalry has turned the global economy into an arena of strategic competition, where critical sectors—from microchips and batteries to rare earths and digital infrastructure—are increasingly treated as matters of national security.

This has “woken Brussels up” and ushered in a new strategic language. The EU maintains that it is not decoupling from China, but rather de-risking—reducing dependence in key sectors and creating alternatives. India fits almost perfectly into this strategy because it is large enough to carry weight, stable enough to be predictable, and dynamic enough to attract investment. Moreover, it offers Europe something essential in the current period: a potential partner in reorganizing global supply chains toward what many European officials consider reliable networks.

For India, too, the motives are equally geopolitical. New Delhi has positioned itself as a global power that refuses to belong to any single bloc. India seeks Western investment and technology, but without fully aligning itself with the Western strategic architecture. It maintains relations with Russia, engages with China, and at the same time deepens ties with Europe, the US and Japan.

In this way, the EU-India agreement resembles the one with Mercosur—not because it liberalizes the same goods, but because it symbolizes the same ambition, namely Europe’s attempt to remain a global economic pole capable of negotiating major strategic agreements without merely following Washington or reacting mechanically to Beijing.

WHAT DOES THIS AGREEMENT CONTAIN AND DELIVER?

The agreement is expected to eliminate or reduce tariffs on 96.6% of traded goods (by value), while the EU will reduce tariffs on 99.5% of imports from India within seven years. Brussels expects this to save European companies around €4 billion per year in customs duties and, in the longer term, double EU exports to India by 2032.

The most dramatic breakthrough concerns the automotive industry, the sector that more than any other symbolized the difficulty of the negotiations. India has long imposed extremely high tariffs to protect its auto industry (reportedly up to 110%). For European manufacturers, this was not only a barrier but also a paradox. India was one of the last major growth markets, yet Europe’s leading export industry remained largely blocked. Under the agreement, India will significantly reduce tariffs on European cars, lowering them to around 10% within five years, with quotas designed to limit the shock and soften domestic political backlash. For Europe, and especially for Germany, this represents an industrial victory, since automobiles are not only economically significant but also part of political identity. For India, it is perhaps a calculated risk, as it opens the market to competition and signals confidence in the long-term strength of domestic manufacturers. However, political risks remain real. The market reacted immediately, and shares of Indian manufacturers fell when details of the tariff cuts emerged.

Another important sector that blends economics with culture and morality is alcohol. India has long imposed very high tariffs on European wines and spirits—up to about 150%—making European products expensive and restricting their access to a growing Indian market. The agreement provides for gradual reductions in these tariffs, giving Europe an advantage in exporting high-value consumer goods.

Politically, this is much more than a matter of beverages. Alcohol in India is a sensitive sector, because while it generates revenue, it also intersects with religious and cultural debates and is often linked to moral politics at the state level. Lowering tariffs here demonstrates that India is willing to make politically uncomfortable compromises in order to secure gains elsewhere.

India’s gains are also significant, particularly in labor-intensive exports. The main benefits are concentrated in sectors such as textiles, leather and jewellery—industries that employ millions and are central to India’s ambition to boost manufacturing. The EU will eliminate tariffs on key Indian export categories including textiles, leather, basic metals, rubber products, chemicals, and precious stones and jewellery.

However, like any agreement, this one carries risks. Agriculture remains a red line. Sensitive products such as soya, beef, sugar, rice and dairy are excluded. This closely mirrors the Mercosur case. In Europe, farmers have become one of the most politically mobilized groups of the past decade, and any agreement perceived as harmful to European agriculture risks protests and political backlash. In India, too, agriculture is a politically charged issue. Both sides therefore recognized that a fully comprehensive agreement was unrealistic and opted for a model in which industrial liberalization dominates, while agricultural sensitivities are safeguarded.

Perhaps the most significant and controversial element relates to climate policy. The EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes additional costs on imports of carbon-intensive products such as steel, cement and fertilizers, remains intact. India has strongly opposed the CBAM, viewing it as unfair and protectionist. This is not merely a technical detail; it is a geopolitical signal. The CBAM is becoming a new instrument of European power. For Europe, it is a strategic choice aimed at defending its climate agenda, even at the risk of diplomatic friction. For India, it represents a serious challenge.

Brussels also offered partial compensation. The EU will provide €500 million over two years to help India reduce emissions. It reflects a typical European logic: no exemptions, but support; no retreat from standards, but financial assistance for adaptation.

The battle may now shift from negotiating tables to parliaments. Trade agreements require ratification, and this process in Europe has grown increasingly complex. The Mercosur agreement serves as a warning example, but Brussels believes that geopolitics may help carry this one through.

The EU-India agreement encapsulates the new political nature of trade in the 2020s. It is not simply a celebration of free-market ideology, but a carefully crafted compromise in which sensitive sectors are protected, strategic industries are opened, and climate standards are enforced through economic leverage. It belongs to a new era, in which trade agreements are no longer merely economic documents, but also instruments of geopolitical competition. / Panorama

*Academician, Prof. Dr Anastas Angjeli is an economy expert, former Economy Minister and MP, founder and president of the Mediterranean University of Albania