28
JAN
2026
The reason why the EU and India agreed on the free trade agreement on Tuesday after almost 20 years of negotiations is the massive pressure caused by the tariffs and the tariff threats of the Trump administration. In the summer, the EU concluded a very disadvantageous customs agreement with the United States, which – although it has not yet been conclusively ratified – will cause its industry heavy losses. 1] In addition, the US tariff threats can be repeated as often as desired; as long as Brussels has no alternatives, it can be blackmailed in the long run. India, in turn, has chosen the path of resistance, has not complied with the US demand to cut its relations with Russia and therefore has to cope with US tariffs of 50 percent. According to calculations by the Kiel Institute for the World Economy (IfW), this leads to annual losses of 57 billion US dollars or 1.6 percent of gross domestic product (GDP).[ 2] This must be compensated. From the point of view of both sides, the free trade agreement, which has now been signed in New Delhi, contributes to this. In order to reach a quick agreement, sensitive areas were cut out, including large parts of agriculture. The EU, for its part, refrained from insisting on far-reaching demands as usual.
According to the IfW, the additional trading profits made possible by the new agreement amount to 0.12 to 0.13 percent of GDP, thus 22 billion euros for the EU, and four billion US dollars for India.[ 3] This is not enough to offset the duty-related losses from the US business, but contributes to some of it. In addition, particularly hard-hit industries can hope for some relief. According to the IfW, the Indian textile industry can expect an increase in its exports of 38 percent. 4] Food exports could even increase by 84 percent, according to the institute. Conversely, India is significantly reducing the tariffs on wine and spirits, which can relieve French producers, among other things; US President Donald Trump has repeatedly threatened them with extreme tariffs in order to put pressure on France. Some industries even have a chance to achieve net growth. This applies, among other things, to India's chemical industry, whose US exports were largely exempted from customs duties by exception rules [5], which now may be facing a significant increase in its exports to the EU - according to IfW by 119 percent.
Those sectors in particular can also hope for relief, which are considered the main pillars of the German economy. This applies, for example, to the chemical industry, which is likely to suffer heavy losses due to the - not yet ratified - zero tariffs on imports from the USA.[ 6] The IfW estimates the growth of EU chemical exports to India at 205 percent thanks to the free trade agreement. According to IfW, mechanical engineering, which has to suffer not only on steel but also on all goods with steel components, can expect a growth of its Indian exports of 56 percent, according to IfW. In addition, the German automotive industry is likely to benefit on a large scale. India will reduce tariffs on the import of cars, which currently amount to up to 110 percent, initially to 40 percent and in the long term probably to ten percent. Volkswagen, Mercedes-Benz and BMW are the main winners, as well as Renault and Stellantis (Fiat, Peugeot, Opel and others).[ 7] Although there is an upper limit of 160,000 combustion engines and 90,000 electric cars, the tariff reduction can nevertheless help to compensate for losses in exports in the USA, to which German car factories exported around 450,000 cars in 2024 - more than to any other country.
Berlin government advisers accompany the efforts of Germany and the EU to reduce their dependence on the USA in the field of the economy – for example with the new EU free trade agreements with India and with Mercosur – with fundamental strategic considerations about the future of transatlantic relations. For example, a new study by the Foundation for Science and Politics (SWP), which is co-financed by the Federal Chancellery, the Trump administration's handling of the states of Europe is "no longer only transactional, but increasingly extortional. ... Under these new conditions, "Europe must be strategically considered about one's own options for action". Above all, it is now important to "significantly reduce dependence on the USA and even abolish it in central areas". 8] This means "resolving the promise of European autonomy" - "in the sense of strategic ability, decision-making and autonomy for action". If this is not done, there is a scenario that the SWP outlines under the keyword "adjustment": "Europe" will give in to the pressure of the Trump administration "in most areas" and submit to "the demands of the USA" - such as "with the customs agreement of summer 2025".
The way out of dependence is not easy, the SWP notes: "Currently, Germany and Europe are considerably dependent on the USA in terms of security policy and technology; economically, both sides are closely intertwined."[ 9] Real independence is not "to be achieved overnight", but requires "a considerable increase in resources over the next five to ten years". Nevertheless, such a procedure is inevitable. During a "transition period" "Europe is in a weaker negotiating position vis-à-vis the USA"; this applies "especially to the security of Europe" and will "require concessions in other policy areas". However, "the scope for action for Europe is expanding to the extent" that "the continent succeeds in building up its own capacities and reducing one-sided dependencies". With an expanded scope for action, however, it will no longer seem "alternative" in the future to "give in to destructive demands from Washington". At the same time, Germany and the EU could realize their old dream of operating internationally on an equal footing with the USA.[ 10]
[1] S. in the interest of the German automotive industry and the crises of the EU.
[2] Julian Olk: India deal increases EU GDP by 22 billion euros per year. handelsblatt.com 27.01.2026.
[3] Mathias Peer, Beatrice von Braunschweig, Julian Olk: Significant tariff reduction expected - EU closes important deal with India. handelsblatt.com 27.01.2026.
[4] Julian Olk: India deal increases EU GDP by 22 billion euros per year. 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] S. to this economic power in decline.
[7] India apparently wants to drastically reduce tariffs on EU cars. handelsblatt.com 26.01.2026.
[8], [9] Barbara Lippert, Stefan Mair: With, without, against Washington: The redefinition of Europe's relations with the USA. SWP study 2026/S 03. Berlin, 22.01.2026.
[10] S. to "More courage to world power" and "We are world power".