In search of alternatives (II)

Seeking substitution

The reason why the EU and India managed finally to agree on a free trade agreement on Tuesday after nearly twenty years of talks is the massive pressure now being exerted by the Trump administration through its tariffs and tariff threats. In the summer, European Union leaders concluded a highly disadvantageous customs agreement with Washington. Although it has not yet been finally ratified, the new tariff arrangements are already causing heavy losses to European industry.[1] Even more alarming, it has become clear that the US customs threats can be repeated as often as Washington so desires. As long as Brussels has no real alternatives it will remain vulnerable to extortion in the long term. India, unlike the EU, has already chosen a path of resistance. New Delhi has not complied with Trump’s demand to sever its relations with Russia and, consequently, must cope with 50 per cent tariffs on exports to the US. According to calculations by the Kiel Institute for the World Economy (IfW), this measure will result in annual losses of 57 billion dollars, or 1.6 per cent of India’s gross domestic product (GDP).[2] This substantial economic damage demands compensatory action. So, from the perspective of both sides, the free trade agreement now signed off in New Delhi will be seen as a step in the right direction. In order to clinch a deal as quickly as possible, sensitive areas were initially left out, including large segments of agricultural production. For its part, the EU refrained from its usual approach of insisting on far-reaching commitments and demands.

Boosting exports

The IfW study estimates the additional trade gains enabled by the new agreement will amount to between 0.12 and 0.13 per cent of GDP. This means 22 billion euros for the EU and 4 billion US dollars for India.[3] Although this remains far too little to offset the tariff-related losses from their trade with America, it will help to some extent. Moreover, particularly hard-hit industries can hope for relief to a certain degree. According to the IfW, the Indian textile industry can expect to see a 38 per cent increase in exports.[4] Food exports could, the think-tank reckons, even grow by as much as 84 per cent. Conversely, India is significantly reducing its tariffs on wine and spirits, and this measure could provide some respite for producers in France and elsewhere in the EU. President Trump has repeatedly threatened French exporters with extreme punitive tariffs in an attempt to target its pressure on France. However, there are a few industries that could even achieve net growth going forward. Products from India’s chemical industry, for instance, have largely been exempt from US tariffs under special rules.[5] On top of this, Indian chemicals can look forward to a significant increase in exports to the EU, rising by as much as 119 per cent, according to the IfW.

Help for the automotive industry

Industries in Germany considered pillars of the economy can also hope for some relief. This applies, for example, to the chemical industry, which is destined to suffer heavy losses as a result of the zero tariffs on imports from the US, although the EU has not yet ratified this arrangement.[6] The IfW estimates that European chemical exports to India will grow by 205 per cent thanks to the free trade agreement. According to the IfW, the engineering sector, which is very badly hit by the prospect of US special tariffs of 50 per cent not only on steel itself but also on all products containing steel components. The analysts expect machine sector exports to India to grow by 56 per cent. The German automotive industry is also likely to have some real benefits. India has agreed initially reduce its customs duties on car imports. The tariff currently stand at up to 110 per cent, but will now fall to 40 per cent and, in the longer term, to ten per cent. The main winners from this deal are likely to be Volkswagen, Mercedes-Benz and BMW, possibly along with Renault and Stellantis (Fiat, Peugeot, Opel and others).[7] True there will be an upper limit of 160,000 combustion engine-powered vehicles and 90,000 electric cars, but the tariff reduction helps a little to offset the EU’s lost exports to the United States. German car plants exported around 450,000 vehicles to the US in 2024 – more than to any other country.

Reducing dependencies

Berlin government advisers are arguing for Germany and the EU to reduce economic dependency on the United States. The initiatives like the new EU free trade agreements with India and Mercosur reflect fundamental strategic considerations as to the future of transatlantic relations. A new study by the German Institute for International and Security Affairs (SWP), co-funded by the Federal Chancellery, states that the Trump administration’s dealings with European countries are “no longer merely transactional, but increasingly coercive”. So under these new conditions” Europe must “think strategically about its own options for action.” This means above all that the EU must “significantly reduce dependence on the US and even eliminate it in key areas.”[8] It is ultimately a question, the paper argues, of “fulfilling the promise of European autonomy” in terms of “strategic capability, decision-making autonomy and independence of action”. Failure to do so would lead to a scenario that the SWP sums up as “adaptation” in the sense of permanent accommodation to US interests: “Europe” would yield to pressure from the Trump administration “in most areas” and continue to submit to “the demands of the US” – as seen in the damaging customs agreement of summer 2025”.

No longer without any alternative

The path away from dependency is not easy, admits the SWP: “At present, Germany and Europe are heavily reliant on the US in security policy and technology, while economically the two sides are closely intertwined.”[9] The analysts confirm that real autonomy cannot be achieved “overnight”, but will require “a significant growth in resources committed over the next five to ten years”. They say that such a course of action is indispensable. There will necessarily be a “transitional period” during which “Europe will be in a weaker negotiating position vis-à-vis the US.” The SWP sees Europe’s relative weakness flowing mainly from its reliance on Washington in the field of security and acknowledges the need for “concessions in other policy areas”. However, “Europe’s scope for action will expand to the extent that the continent succeeds in building up its own capacities and in reducing unilateral dependencies.” As the continent acquires greater room for manoeuvre, it will no longer appear “inevitable” that Europe must “give in to Washington’s destructive demands”. The advisors’ longer-term vision is that Germany and the EU could realise their long-held dream of operating internationally on an equal footing with the US.[10]

[1] See: Im Interesse der deutschen Kfz-Industrie and Die Krisen der EU.

[2] Julian Olk: Indien-Deal steigert EU-BIP um 22 Milliarden Euro pro Jahr. handelsblatt.com 27.01.2026.

[3] Mathias Peer, Beatrice von Braunschweig, Julian Olk: Deutliche Zollsenkung erwartet – EU schließt wichtigen Deal mit Indien. handelsblatt.com 27.01.2026.

[4] Julian Olk: Indien-Deal steigert EU-BIP um 22 Milliarden Euro pro Jahr. handelsblatt.com 27.01.2026.

[5] Mukul Yudhveer Singh: Trump tariff at 50%: Why Indian chemical industry can still win in the US. manufacturing.economictimes.indiatimes.com 03.11.2025.

[6] See: An economic power in decline.

[7] Indien will offenbar Zölle auf EU-Autos drastisch senken. handelsblatt.com 26.01.2026.

[8], [9] Barbara Lippert, Stefan Mair: Mit, ohne, gegen Washington: Die Neubestimmung der Beziehungen Europas zu den USA. SWP-Studie 2026/S 03. Berlin, 22.01.2026.

[10] See: "More Courage to Assume Global Power" and ‘We’re a global power’.