EU & U.S.-India Trade Deals: Same, Same or Different?

The EU-India and the U.S.-India trade agreements, announced in short succession between late January and early February, might appear similar on the surface, but received widely diverging grades in a recent analysis by the Kiel Institute for the World Economy.

While the paper describes the EU-India deal as a mostly mutually beneficial agreement that is expected to increase GDP in both locales by 0.12-0.13 percent, the U.S.-India agreement is seen as a harm reduction tool to mitigate U.S. tariffs and make concessions to the Trump administration. According to Kiel Institute analysts, the deal only has the potential to cut Indian GDP losses from U.S. policy in half all while hurting Indian exports to the U.S. even further.

Dubbed the "mother of all trade deals" by European Commission President Ursula von der Leyen, the EU-India agreement is one of the biggest trade deals ever negotiated. While much less is known about the U.S.-India agreement at this point, it is much smaller in scope. While the earlier analysis used for this chart is based on a reduction of U.S tariffs on Indian imports to +15 percent, the actual deals only dials them back to +18 percent. Like assumed in the authors, the agreement also supposedly includes India opening up its market to more U.S. capital goods like fossil fuels and agricultural products, like has become customary for U.S. trade deals of the tariff era.

India and the EU are expected to see their GDPs rise as a result of the trade deals and increase exports between one another by 41 percent in the case of India and even 65 percent in the case of the EU. At the same time, the current scenario of having a U.S. deal is associated with lower Indian GDP by 0.88 percent, compared to a decline of 1.64 percent if tariffs of 50 percent had stayed in place. In both scenarios, Indian exports to the United States are expected down 22-26 percent. Together with the positive effects of the EU-India trade agreements, India can expect its GDP to still suffer to the tune of 0.71 percent with both deals in place.

While the details of the U.S. agreement are still unknown, Trump has also claimed India would reduce its (customarily high) tariffs to zero for U.S. imports. Trade deals with Malaysia and Cambodia finalized as well as a framework with ASEAN announced in October ended up covering just 68 percent of two-way trade between the nations, despite previous claims from U.S. President Donald Trump also having been more all-encompassing in regards to Asian trade deals aiming to lower tariff load.