Fatemeh Aman
Partially as a result of the US trade war, India is close to achieving a breakthrough on India-EU trade relations.
When the United States imposed sweeping new tariffs on Indian exports this summer, it did more than rattle trade statistics. The shift compelled New Delhi to reassess its foreign policy and economic directions.
Over the years, India has managed a delicate balance in its ties with Washington, Beijing, Moscow, and Tehran. At the same time, it has worked to establish itself as a competitive manufacturing base and a central link in regional networks, from transport corridors and energy pipelines to digital trade routes, that connect South Asia with Central Asia, the Middle East, and beyond. The United States’ decision to double tariffs, some now as high as 50 percent, dealt a sharp blow to India’s export sectors, highlighting the risks of over-reliance on American markets.
In response, Prime Minister Narendra Modi’s government has scrambled to diversify. Two tracks have emerged. First, India is moving quickly to finalize a free trade agreement with the European Union. After years of stalled talks, negotiations are finally gaining momentum, with Germany and France at the forefront of the push. India will still need to navigate tough compromises on issues like environmental rules, auto exports, and dairy products. Even so, the European Union offers a stable, rules-based market and is thus a far more dependable partner than the often-unpredictable United States.
Second, India is exploring a limited thaw with China. Relations between the two powers remain fraught, particularly after years of deadly border clashes, but there have been recent signs of quiet de-escalation. Limited commercial channels are reopening, and both governments have signaled a desire to prevent new crises. Even a modest détente reduces supply chain risks and frees India to focus on trade diversification and domestic economic reforms.
This new balancing act has direct consequences for Iran, particularly for the fate of the Chabahar Port, a key port in the southern Iranian city of Chabahar. For more than a decade, Chabahar has been India’s answer to Pakistan’s Gwadar Port, part of China’s flagship China-Pakistan Economic Corridor. While Gwadar is a massive project anchoring China’s presence in Pakistan, Chabahar is far smaller in scale but provides India with a vital route to Afghanistan, Central Asia, and potentially Russia, bypassing Pakistan altogether. It has been a central piece of India’s strategy to connect with Eurasian markets while countering Chinese influence in the region.
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