As tariff threats from former US President Donald Trump loom large, countries worldwide are looking to bolster trade ties to mitigate the potential economic fallout. Against this backdrop, India and the United Kingdom have resumed negotiations on a free trade agreement after an eight-month pause. This 15th round of talks comes at a time of increasing global economic uncertainty fuelled by US trade policies. The urgency of these discussions has intensified, given the expectation that the UK-India trade talks will accelerate in response to Trump’s tariff threats.
A recent Policy Circle article had suggested that while securing a trade deal with the US remains desirable, India must move beyond a US-centric trade strategy. New Delhi should actively pursue free trade agreements with major economies such as the European Union (EU), the UK, and even China to adapt to the shifting global trade dynamics. Diversifying trade partnerships is crucial to ensuring India’s long-term economic resilience.
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India-UK free trade agreement
The resumption of India-UK trade negotiations is a strategic move driven by evolving global trade dynamics. The talks were initially paused in May 2024 due to general elections in both nations. However, with both India and the UK now facing scrutiny from Trump over their trade deficits with the US, the need for an FTA has gained fresh momentum.
For the UK, Trump’s proposed 25% tariff on steel imports could severely impact its steel industry. Additionally, the US threat of including Value Added Tax in the calculation of reciprocal tariffs puts several UK industries at risk. India, on the other hand, presents a lucrative market for British exports, including automobiles, Scotch whisky, meat products, chocolates, processed foods, cereals, and pharmaceuticals. A well-structured FTA between India and the UK could yield substantial economic benefits for both nations.
India’s trade diversification strategy is also evident in its push for a free trade agreement with the EU. High-level visits by key officials, including UK Secretary of State for Business and Trade Jonathan Reynolds and EU Commission President Ursula von der Leyen, are expected to accelerate ongoing trade negotiations. With both the UK and the EU seeking stronger ties with emerging economies, India remains a highly attractive trade partner due to its vast market potential.
The post-Trump world order
During her recent announcement of her India visit, EU President Ursula von der Leyen highlighted the changing world order. Without directly naming the US or Trump, she remarked on the intensification of global geostrategic competition. However, it would be inaccurate to place the blame solely on the US, as protectionist policies and efforts to safeguard domestic industries have been rising globally. Isolationism has re-emerged as a dominant theme in international trade, reshaping economic alliances.
Yet, this inward-looking approach is inherently flawed. When a country closes its doors to others, it inevitably faces reciprocal actions. The US may face significant repercussions, as shutting out global trade partners could ultimately weaken its own industrial competitiveness.
Rise of new economic blocs
While Trump’s policies aim to strengthen domestic industries and reduce trade deficits, they risk isolating the US on the global stage. As Washington retreats from multilateral trade agreements, other nations, particularly China and Russia, are stepping in to fill the void. China has been actively forging new trade alliances, effectively sidelining the US and creating alternative economic networks. This shift not only diminishes America’s economic influence but also allows geopolitical rivals to expand their foothold in global trade.
This trend is further evidenced by the growing number of trade agreements being finalised without US involvement. In the past few months alone, the EU has concluded three major trade deals—one with four South American countries, another with Switzerland, and an expanded trade agreement with Mexico. Talks with Malaysia have also resumed after a 13-year hiatus. The EU’s push for these trade deals underscores a global trend where countries are lowering trade barriers among themselves while the US raises its own.
The BRICS bloc has also expanded, with Indonesia becoming the 10th member, reinforcing the group’s collective economic clout. Trade and investment between ASEAN nations and India are deepening, highlighting India’s growing economic power. The UK has also sought new trade alliances by officially joining the trans-Pacific trade bloc, which includes key economies in Asia and Latin America.
In an interconnected world, economic collaboration and adherence to multilateral agreements have historically been more effective in promoting prosperity and national security. The rising tide of protectionism threatens to disrupt these established trade networks, potentially leading to greater economic instability. Given these challenges, the US must reconsider its approach to trade policy to avoid being sidelined in the evolving global economic landscape.
As nations adapt to the shifting trade order, India’s focus on diversifying its economic partnerships with the UK, EU, and other major players will be critical. By reinforcing its global trade ties, India can secure its economic future while also contributing to a more balanced and inclusive international trade environment. The global economy is being reconfigured, with trade finding new routes and partnerships—proving that when barriers arise, economies will find a way to circumvent them.