This week we talk about the European Union, India, and tariffs.
We also discuss trade barriers, free trade, and dumping.
Recommended Book: The Kill Chain by Christian Brose
Transcript
A free trade agreement, sometimes called a free trade treaty, is a law that reduces the cost and regulatory burden of trading between two or more states.
There are many theories as to the ideal way to do international trade, with some economists and politicians positing that complete free and open trade is the way to go, because it allows goods and services to cross borders completely unencumbered, which in turn allows businesses in different countries to really lean into whatever they’re good at, selling their cars to countries that are less good at making cars, while that recipient country produces soy beans or computer chips or whatever they’re good at making, and sending those in the other direction, likewise unburdened by stiff tariffs or regulatory hurdles. Each country can thus produce the best product cheapest and sell it to the market where their products are in high-demand, while they, in turn, benefit from the same when it comes to other products and services.
This theory leans on the idea that everyone is better off when everyone does what they’re best at, rather than trying to do everything—specialization. But those who oppose this conception of international trade argue that this creates and reinforces asymmetries between different nations and businesses: a country that’s really good at producing soybeans may be at a substantial disadvantage if the country that makes cars ever decides to go to war, because they won’t have the existing infrastructure to build tanks or drones or whatever else, while the country that specializes in computer chips might hold all the cards when it comes to generating economic pressure against its enemies or would-be enemies, because such chips are in everything these days, from military hardware to kitchen appliances.
This also creates potential frailties for countries that specialize in, say, buggy whips, only to have a new technology like the automobile come around and put a significant chunk of their total economy out of business.
This theory may also leave local businesses that don’t lean into a regional strength kind of in the lurch. If a country with a decent-sized automobile industry decides leaves their borders completely open to international competition, there’s a chance that could light a fire under those local producers, forcing them to become more competitive, but there’s also a chance it could collapse the market for local offerings—their cars might no longer be desirable, because the international stuff flooding across the borders from a nation that has heavily prioritized making cars are just so much better and cheaper, whether naturally or artificially, because of subsidies by that foreign government meant to help them take out international competition.
This is why most nations have all sorts of tariffs, regulations, and other trade barriers erected between them and their trading partners, and why those trade barriers are ultra-specific, different for every single possible trade partner. The goal is to make international options less appealing by making them more expensive, or making it trickier for foreign competition to smoothly and quickly get their products on your shelves, while still making those things available in a volume that aligns with local consumer demands. And then ideally making it easier and cheaper for your stuff to get on their shelves.
The negotiation of all this is massively complicated because Country A might want to favor their soybean farmers, who are an important voting bloc, and Country B might want to do the same for their car industry, because tax income from that industry is vital, and these two governments will thus do what they can to ensure their favored local industries and businesses have the biggest leg-up possible in as many foreign markets as possible, without giving away so much to their trade partners that they create worse situations for other industries and businesses (and the people who run them) on the home-front, as a consequence.
What I’d like to talk about today is a recent, massive and potentially quite vital trade deal that was struck in early 2026, and what it might mean for global trade.
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At the tail-end of January 2026, the European Commission announced that they had struck what they called “the mother of all deals” with India, this deal the culmination of two decades worth of negotiation, its tenets impacting about 2 billion people and around a quarter of the world’s total GDP.
The agreement, as is the case with most such agreements, is fairly complex. But in essence it reduces or eliminates tariffs on 96.6% of all EU goods exported to India, which means about 4 billion euros of annual duties that would have otherwise been paid on European products in India will disappear—a savings for Indian consumers, and a boon for European producers whose products will now be cheaper in India.
This is expected to be especially beneficial for European automakers like Volkswagen, Renault, and BMW, which have long been weighed down by a 110% tariff in India; that tariff will be reduced to as little as 10% on the first 250,000 vehicles sold, following this agreement. Lower priced vehicles will still face higher tariffs, to help protect India’s local carmakers, but electric vehicles will benefit from a five-year grace period, as India has been focusing on allowing as many cheap, renewable energy assets and infrastructure into the country as possible, regardless of where they come from.
Tariffs on machinery, chemicals, and pharmaceuticals coming from the EU will be almost entirely eliminated, down from tariff rates of 44, 22, and 11%, respectively. Wine, which has long been tariffed at a rate of 150%, will be cut to between 20-30% for many varieties, and spirits from the EU coming into India will see 150% tariffs cut to 40%.
On the other side of this deal, the EU will also open its market to Indian goods, reducing tariffs on about 99.5% of all such goods, including seafood, textiles, gems and jewelry, leather goods, plastic products, and toys. Several of these categories, like Indian seafood, textile-making, and other labor-intensive industries, have had a rough time of late, because of high US tariffs enforced by President Trump’s second administration, so this is being seen as a significant win for them in particular.
Interestingly, while the reduction in trade barriers is substantial here, and the number of people and industries, and amount of money that’s involved is massive, this deal doesn’t include, and in some cases explicitly excludes, any agreements related to labor rights, climate commitment, or environmental standards.
This means that while the European Union has thus far been pretty strict in terms of ensuring incoming products align with their policies and values regarding things like carbon emissions and ensuring goods aren’t produced by people laboring in slave-like conditions, this deal falls short of such enforcements, allowing India to operate with relative impunity, with regards to those issues, at least, and still sell with dramatically reduced barriers, on the European market. That’s a big deal, and is perhaps the biggest indicator of just how badly the EU wanted to make this deal work.
The EU was also able to keep significant protections in place for important local sectors like beef and chicken, dairy, rice, and sugar—all industries in which India would have liked to compete in the EU, but which, because of those maintained barriers, they practically can’t. That would likely have been a feverishly negotiated topic, and it’s likely an indicator of how much India wanted this to work, too.
On that note, both India and the EU were apparently especially interested in making this multi-decade deal work, now, because of increasing pressure from China on one side and the US on the other.
China has been rerouting many of its cheap products that would have previously gone to the US market, elsewhere, engaging in what’s often called ‘dumping’ which slowly but surely puts businesses that produce comparable products at a profit in those local target markets out of business, at which point these Chinese companies can then ratchet up their prices and profits, operating without real competition.
The EU and India have both been targeted by Chinese companies taking this approach, because they’re still producing at a feverish pace and because of US tariffs and the general unpredictability and irregularity of US policy overall under the second Trump administration, they’ve been firing that cheap product cannon more intensely at other large markets, instead—and India and the EU are the next two big markets in line right now, after the US and China.
On the US side of things, those same tariffs have been hurting companies in both the EU and India that would otherwise been shipping their goods to the rich and spendy US market, and in many cases these tariffs have been fine-tuned to hurt important local industries as much as possible, because that’s one of Trump’s main negotiating tactics: lead with pain and then negotiate to take some of the pain away.
This deal, then, serves multiple purposes in that it creates a valuable, newly polished trade relationship between a rich and powerful existing bloc and the newly most-populous country on the planet, which is also rapidly expanding economically and geopolitically.
One last point to note, here, though, is that the European Union has been trying to create these sorts of mutually beneficial deals with non-US partners for a while, now, and the two most recent wins, trade deals with a South American trade bloc and with Indonesia, in early January 2026 and in September of 2025, respectively, have borne mixed results.
The deal with Indonesia seems to be moving forward apace, and while it’s a heck of a lot smaller than the India deal, only worth about 27 billion euros, that’s still important, as Indonesia is increasingly important, both economically and geopolitically, especially in a Southeast Asia that’s slowly reinforcing itself against China’s economically and potentially militarily expansionist tendencies.
The deal with that South American bloc, however, was referred to the EU Court of Justice in mid-January for legal review due to its lack of alignment with other EU treaties, and that could delay or prevent its ratification.
This new mother of all deals with India could likewise face holdups, or could fizzle before being implemented—though most analysts who are keeping eyes on this are seeing it not just as an economic agreement, but a gesture of solidarity at a moment in which China and the US are signaling their intent to carve up the world into hemispheric hegemonies, when those who might otherwise be forced into subordinate positions are scrambling to figure out who they can team up with and create counter-balancing forces capable of standing up against current and future aggression and coercion.
There’s a chance that even if politics and propriety threaten to get in the way, then, India and the EU will figure out a way to work together, on this and potentially other matters of global import, as well.
Show Notes
https://www.theguardian.com/business/2026/jan/27/eu-and-india-sign-free-trade-agreement
https://www.reuters.com/sustainability/climate-energy/eu-india-trade-deal-leaves-blocs-carbon-border-tariff-intact-2026-01-27/
https://archive.is/20260127162349/https://www.ft.com/content/b03b1344-7e92-4d0d-b85e-5ed92fc8f550
https://en.wikipedia.org/wiki/Free_trade_agreement
https://en.wikipedia.org/wiki/Trade_barrier
https://ec.europa.eu/commission/presscorner/detail/en/ip_26_184
https://ec.europa.eu/commission/presscorner/api/files/document/print/en/ip_26_184/IP_26_184_EN.pdf
https://www.ndtv.com/world-news/how-indias-mother-of-all-deals-with-eu-wipes-out-pakistans-trade-advantage-10921011
https://theconversation.com/what-the-mother-of-all-deals-between-india-and-the-eu-means-for-global-trade-274515
https://cepr.org/voxeu/columns/economic-impact-us-tariff-hikes-significance-trade-diversion-effects
https://www.europarl.europa.eu/news/en/press-room/20260116IPR32450/eu-mercosur-meps-demand-a-legal-opinion-on-its-conformity-with-the-eu-treaties
https://www.aljazeera.com/economy/2026/1/27/mother-of-all-deals-how-india-eu-trade-deal-creates-27-trillion-market
https://www.cnbc.com/2026/01/27/trump-reaction-eu-india-trade-deal-fta.html
https://www.atlanticcouncil.org/content-series/inflection-points/the-mother-of-all-trade-deals-in-the-time-of-trump/
https://economictimes.indiatimes.com/news/economy/foreign-trade/with-mother-of-all-deals-in-bag-minister-piyush-goyal-says-mother-will-be-compassionate-fair-to-all-28-children/articleshow/127821015.cms
https://en.wikipedia.org/wiki/India%E2%80%93European_Union_Free_Trade_Agreement
https://en.wikipedia.org/wiki/India%E2%80%93European_Union_relations
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