India and the European Union said they reached a new free trade deal that could directly benefit European automakers such as Volkswagen AG (VWAPY), Mercedes-Benz Group AG (MBGAF), and BMW AG (DE:BMW). The agreement will lower tariffs across many goods and link nearly two billion people into a single market. The European Union said the deal will cut or remove tariffs on more than 90% of its exports to India and save firms about $4.8 billion each year. Most importantly, tariffs on European cars will fall over time to 10% from 110%, with lower rates capped at 250,000 vehicles a year. At the same time, India will reduce tariffs on machinery, chemicals, and drugs, while easing limits on select farm goods.
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Jacob Kirkegaard of the Peterson Institute for International Economics said India “is really dropping some trade barriers,” a shift that could have a larger effect than past European trade deals. For Europe, the agreement opens one of the few large markets that is still growing fast and remains underserved by foreign brands. For India, the deal supports exports of textiles, jewelry, and leather, while also boosting investor confidence. Prime Minister Narendra Modi said the agreement would “strengthen the confidence of every business and every investor in India.”
Why the U.S. Matters Here
The timing of the deal reflects a wider shift in global trade patterns rather than a single event. India faced 50% U.S. tariffs in 2025, among the highest levied by Washington, and that pressure has pushed New Delhi to reduce its reliance on a single main export market. Rajesh Agrawal, India’s commerce secretary, said, “The best way to do it is to reduce export dependence on any one particular geography.”
Meanwhile, Europe has signed trade deals with South America and Southeast Asia, while the United Kingdom has reached its own agreement with India. Canada has also moved to ease trade with China, showing a similar response.
Speaking at the World Economic Forum, Canadian Prime Minister Mark Carney urged middle powers to build a “dense web of connections in trade, investment and culture.” Taken together, these moves show how many U.S. partners are adjusting to higher tariffs by strengthening ties elsewhere.
India is now the European Union’s largest trading partner for goods, with two-way trade reaching $136 billion last year. Yet India still accounts for only about 2% of total European goods trade, suggesting room for long-term growth.
For the U.S., the agreement points to a gradual loss of influence over global trade rules, even as its economy stays strong.
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