[Trade is no longer just about flows of goods, but about the architecture of power.]
Editor’s note: As India moves towards a landmark trade agreement with the European Union and navigates renewed trade pressure from the US, this essay examines how trade architecture is reshaping India’s strategic autonomy.
Trade has become the sharp edge of geopolitics. Over the past few days, Washington and Berlin have offered India two contrasting—yet converging—signals of strategic courtship. Sergio Gor, the new US envoy, declared that India would be invited into Pax Silica, a US-led framework to secure the silicon-to-AI supply chain—an unmistakable attempt to draw India deeper into the West’s critical-minerals and semiconductor architecture.
Almost simultaneously, Germany’s chancellor confirmed that the long-pending India-European Union (EU) free-trade agreement (FTA) would be concluded in January. Senior EU leaders are expected in India later this month for the signing. The urgency reflects Europe’s anxiety—about US unpredictability and over-dependence on China—as much as India’s rising market weight.
Even beyond the transatlantic space, the signals are telling. Canada’s outreach to China, at the expense of its traditional alignment with the US, underscores how demand, markets and technologies are reshaping global alignments. For New Delhi, and for Indian industry, the challenge is to secure strategic leverage in a system increasingly shaped by trade corridors, technology regimes, supply-chain dependencies, sanctions politics, climate-linked regulation and the standards-setting power of large markets—not merely by traditional diplomacy or military security.
The global system is moving away from a unified, rules-based trading order towards overlapping and competing economic spheres. Strategic autonomy, in this context, is the capacity to retain economic and diplomatic choices. India’s ability to buy without coercion, sell without veto, and build industrial capability without becoming hostage to a single supplier or market will be its true test. Productivity, scale and industrial policy are the instruments; diversified trade power is the means.
Donald Trump has just imposed an additional 10% tariff, effective June 1, on eight European countries—Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland—simply because they oppose his takeover of Greenland. In a joint statement, the European Commission’s president, Ursula von der Leyen, and the head of the European Council, Antonio Costa, pointed out that the new tariff “would undermine transatlantic relations and risk a dangerous downward spiral,” and spoke about the need for “sovereignty”. Trade and economics now turn on caprice; new trade orders are inevitable. Reports suggest the EU is weighing retaliatory tariffs against the US—an escalation that would likely hurt Europe more than it helps.
This fragmentation is not unfolding along a single fault line. It is occurring by sector, by technological intensity and by political risk. Globalisation across key technologies—semiconductors, critical minerals, AI systems and advanced manufacturing—is being reordered by economic nationalism and geopolitical intent. What is emerging is not two neat blocs, but overlapping rule systems: US restrictions on advanced-technology flows; European regulatory barriers tied to climate and labour norms; a China-led manufacturing ecosystem with competitive dominance; and a contested middle space of developing economies pulled by competing incentives.
For India, this emerging order is both an enabler and a constraint. It is enabling because fragmentation is driving states and firms to seek alternatives and redundancy. With its market scale, depth and accelerating industrialisation, India is among the most plausible large manufacturing and sourcing platforms outside China. Yet it is also a constraint. India remains exposed through dependence on imported intermediates and an industrial base that is still unevenly competitive—weaknesses that affect not only economic resilience, but also military preparedness.
Crafting India’s Strategic Space
India wants to avoid being trapped inside any single economic sphere. It does not wish to become a subordinate node in Western-led supply chains that demand geopolitical alignment, nor does it want structural dependence on a China-centred manufacturing ecosystem that carries both competitive and security risks. India’s preference is diversification—hedging as national strategy.
But hedging has costs. Major powers increasingly demand political alignment, not merely price alignment. Trade coercion and trade weaponisation are now framed as national security. As a result, India’s trade choices affect its military and diplomatic posture as much as its economy. In a fragmented world, single-track alignment becomes strategic fragility. India’s trade trajectory is shaped—directly or indirectly—by three powers: the US, Russia and China. Much therefore depends on whether India can be seen as a stable economic partner: predictable in regulation, credible in commitments, and capable of offering an ease of doing business comparable to China. On these parameters, India still has ground to cover.
India’s strategic space must be crafted through geo-economics: a calibrated mix of trade agreements, supply-chain partnerships, industrial-policy instruments and diplomacy. This is where FTAs matter—not simply as instruments of trade liberalisation, but as diplomatic architecture. They rest on the assumption that fragmentation will persist, driven by forces deeper than any single conflict: US-China rivalry, China-linked supply-chain vulnerabilities, climate-linked economic nationalism and technology controls.
The purpose of an FTA strategy, therefore, is not merely to reduce tariffs. It is to create preferential market corridors into the world’s largest demand centres and to attract production networks seeking alternatives to China—thereby expanding strategic space in the pursuit of autonomy.
In this environment, the role of an FTA changes. It is no longer about trade volumes alone. It functions as both a geopolitical bridge and a supply-chain insurance policy. India has responded by accelerating agreements across multiple regions: with the EU, Britain, the European Free Trade Association (EFTA) economies, ASEAN nations and Gulf partners. This network-building reflects an effort to construct an Indian trade perimeter—an ecosystem of preferential access points that reduces dependence on any single corridor.
Ultimately, the strategic value of this approach depends on India’s ability to build comprehensive industrial and technological ecosystems capable of competitive value addition. Connector status without these foundations breeds vulnerability: it invites countervailing action and collapses when geopolitical barriers harden. For this strategy to hold, politics and policy must align around clear national goals, and Indian firms must be willing to build export-driven global scale—and to take global-scale risks.
Crucial Negotiations
Two negotiations are consequential: the India-EU FTA and an India-US trade deal.
The EU agreement could be among the most important trade deals India has signed in decades. The EU is not only a market of high purchasing power; it is a regulatory superpower. Its product norms and industrial-compliance frameworks shape global trade behaviour far beyond Europe.
Preferential access to such a market matters both for volume and for quality upgrading. The EU already accounts for about 17% of India’s total exports, and bilateral trade in goods reached $136.5 billion in 2024-25, making it India’s largest goods trading partner. The negotiations reflect this asymmetry. The EU has sought steep tariff cuts on sensitive products such as automobiles, medical devices, wine and spirits, while India has pushed for duty-free access for labour-intensive exports and faster recognition for its expanding automobile and electronics sectors.
This is not merely tariff bargaining. It is a contest over who captures the industrial rents created by geo-economic fragmentation: whether European firms deepen their penetration of India’s consumer market, or Indian producers gain privileged access to Europe’s regulatory fortress.
The opportunity, however, comes with demanding conditions. Europe’s trade philosophy is now tightly linked to climate and standards compliance. The Carbon Border Adjustment Mechanism (CBAM), activated from January 1, 2026, will impose carbon-linked costs that function as a barrier if Indian producers are unprepared. The EU FTA, therefore, is not just about tariffs; it is a test of whether Indian industry can adapt to a compliance-driven trade regime.
The US negotiation, by contrast, is economically larger but politically less predictable. The US remains India’s most important export opportunity, combining market scale, high purchasing power and access to advanced value chains. India’s smartphone exports surged in FY2024-25 and now form a significant share of exports to the US, followed by pharmaceuticals. Electronics exports, in particular, link India’s industrial ambitions to US demand. Sustaining this momentum will require deeper domestic ecosystems.
Yet the US is also India’s most politically volatile trade partner. India needs access not only for exports, but for technology and military-domain linkages. At the same time, it must insulate itself from episodic and coercive trade tactics. Even if the Russia-Ukraine war were to end, easing some pressures, it would not reverse the deeper structural shifts in US trade behaviour.
This volatility operates less through steady protectionism and more through abrupt, personality-driven shocks. Tariffs and controls can appear without warning, creating planning uncertainty. For India, the greater risk lies not in tariff levels themselves, but in unpredictability. Supply chains, contracts and investment decisions require stability. A partner whose trade policy swings with domestic political theatre becomes a structural risk—one that is difficult to avoid.
When negotiations collapsed earlier, tariffs were doubled in August to 50%—among the highest globally—including a 25% levy explicitly linked to India’s purchases of Russian oil. Talks continue, but the persistent threat of tariffs turns the process into something closer to negotiation under pressure than partnership. Personal politics, and India’s relationship with Russia amid the Ukraine war, remain binding constraints.
Trade data underlines this vulnerability. Between May and November 2025, India’s exports to the US fell by 20.7%, even as exports to the rest of the world rose by 5.5%. Diversification has begun, but it remains partial and reactive. With India’s trade surplus with the US politically sensitive in Washington, India may be compelled to increase purchases of US energy and defence equipment to narrow a $47 billion goods trade gap. The strategic reality is clear: India can no longer negotiate trade in isolation—it must increasingly negotiate geopolitics alongside it.
The Russia and China Factors
Russia is a complex variable in India’s strategic calculus. It provides energy flexibility and a degree of diplomatic continuity, even as defence purchases decline. At the same time, it triggers Western conditionalities. India’s crude purchases from Russia have become a political lever in Washington, largely detached from India’s economic logic. Even recent reductions—imports fell to about 1.2 million barrels a day in December from 1.8 million in November—may not be sufficient to neutralise political pressure. Russia’s deepening trade and political alignment with China adds another layer of complication.
Yet India cannot ignore Eurasian trade geography. Trade between India and the Eurasian Economic Union (EAEU)—where Russia remains central and China is emerging as a significant influencer—stood at roughly $69 billion in 2024. India and Russia have set a target of expanding bilateral trade to over $100 billion by 2030. India’s exploration of an EAEU FTA is partly driven by the need to widen export markets and diversify strategic partnerships.
This creates tension with Western trade integration. The Russian dimension of India’s Eurasian strategy complicates engagement with the US and Europe. Yet for India, the EAEU remains important for strategic autonomy, offering access to new markets and multi-corridor connectivity that reduce reliance on a narrow set of trade routes.
China presents a more immediate and structural challenge. It is both a dominant competitor and a critical supplier. In third markets, Chinese producers exert sustained price pressure. Within Indian supply chains, Chinese inputs remain pervasive across electronics components, chemicals and industrial intermediates. This goes beyond a bilateral trade deficit. It constitutes a strategic vulnerability—one compounded by China’s territorial claims against India and its deepening strategic alignment with Pakistan.
Strategic autonomy is no longer a slogan—it is India’s central strategy.
India’s Strategic Strengths and Weaknesses
India’s strengths in this environment are still emerging. First, there are early signs of a structural shift in export composition. Electronics has become the standout performer, rising 47% year on year in the first eight months of 2025 and lifting its share to over 11% of total exports. This reflects deeper integration into global value chains and lends credibility to India’s attempt to capture part of the China-plus-one shift.
Second, India’s trade ecosystem stands to benefit from targeted agreements that widen market access and support job creation. The India-Australia Economic Cooperation and Trade Agreement (ECTA), for example, is projected to generate around one million jobs across labour-intensive sectors such as textiles and apparel, leather, footwear, furniture, machinery, electrical goods and railway wagons. Australia has committed to zero-duty access for 96.4% of Indian exports by value. When aligned with employment strategy, FTAs can support social stability alongside economic expansion.
Third, India is gaining traction in parts of Europe even ahead of an EU-wide agreement. During April-November, Spain’s imports from India rose by over 56% to $4.7 billion; exports to Germany increased by 9.3% to $7.5 billion in the first eight months of 2025; Belgium reached $4.4 billion; and Poland $1.82 billion. Europe is not a single market. Targeted sector-market strategies can deliver gains even before an umbrella FTA secures preferential access.
These strengths coexist with persistent structural weaknesses. India remains dependent on imported intermediates, particularly from China. It exports finished electronics and pharmaceuticals while relying on upstream inputs. Even as electronics exports have surged, imports of components such as circuit boards and integrated circuits from China have risen in parallel. In an era of trade weaponisation, this intermediate layer is where supply-chain vulnerability resides. Addressing it will require a sustained industrial policy focused on technology-led sectors, backed by close coordination between policymakers and industry.
Regional opportunity contraction is another risk. Exports to ASEAN fell by 16.9% between May and November 2025. Although India has signed FTAs with most major ASEAN economies, it remains outside the Regional Comprehensive Economic Partnership (RCEP). Meanwhile, ASEAN and China have concluded an upgraded FTA, intensifying competitive pressure on Indian exporters. Fragmentation, in this sense, is not always an opening. Asian supply chains are consolidating around China in ways that could sideline India unless it becomes more cost-competitive and more deeply integrated into both regional and Western production networks.
Import concentration is also rising. India’s top seven import sources—including China, the United Arab Emirates, Russia and the US—accounted for 43% of total imports in the first quarter of FY2026, up from 39% a year earlier, with imports from these countries reaching $76.7 billion. Greater concentration increases vulnerability. Disruptions along a few corridors can quickly spill over into macroeconomic instability.
The Russia-Ukraine war continues to shape this backdrop through volatility, sanctions pressure and energy uncertainty. A credible end to the conflict—particularly one that eases energy markets and sanctions stress—would expand India’s strategic room. At the same time, the war has created tactical openings. India’s exports of petroleum products reached an all-time high in 2025, accounting for over a tenth of total product exports by value, with shipments rising to a record 1.28 million barrels a day. Disruption can create short-term trade opportunities even as it generates longer-term strategic pressure through compliance and sanctions scrutiny.
“In a fragmented trading system, access is not power; leverage is.”
Autonomy Through Trade Architecture
India’s geopolitical task for the coming decade is to build export-oriented scale and convert it into leverage amid volatility. That requires constructing a strategic trade space: preferential market access, diversified supply chains, globally competitive scale-driven manufacturing, comprehensive industrial ecosystems and readiness for standards-led trade.
India’s priorities in this fluid environment are both straightforward and demanding. FTAs are one part of the equation. Building domestic capabilities is another. Getting policy and regulation right is a third. A critical fourth is defining industrial policy not merely around domestic ecosystems designed for national security, but around clear global market advantage—moving from connector status to that of a primary provider. This points towards an economics-defined multipolarity: vulnerable in the short term, but exercisable as capability over the medium to long term. It will also require India to shed long-standing bureaucratic rigidities.
If India can anchor trade corridors with the EU—which already absorbs 17% of its exports—and maintain a workable equilibrium with the US even under tariff pressure, it will create redundancy across the world’s two richest demand centres. If it can reduce dependence on Chinese intermediates in sectors such as electronics while increasing domestic value addition, it will strengthen resilience precisely where supply chains are most exposed. And if it can preserve energy security and geopolitical flexibility amid Russia-related turbulence without jeopardising Western market access, it will have executed one of the most difficult balancing acts of the emerging global order.
These are demanding conditions. Meeting them will require strategic clarity and sustained coordination across India’s political leadership and industry. In an age where power is exercised not only through military force but through supply chains, technology dominance, regulations and standards, strategic autonomy is no longer a slogan—it is India’s central strategy. It may also prove to be its most valuable asset. Time, however, may not be on India’s side.
