Europe and India to Align to Thwart a One-Sided Trade Order
At Davos, the European Commission President signals that the “mother of trade deals” is now on the anvil
KBS Sidhu
Chandigarh, January 21, 2026: Europe–Hindi, Buy-Buy
Speeches by world leaders at the World Economic Forum in Davos frequently make headlines. They are designed to: a crisp phrase, a flattering nod to an audience, a signal to markets. Yet they rarely do three things at once. They rarely read like a curtain-raiser for a major agreement not yet formally announced; they rarely compress a strategic turn into a single, quotable paragraph; and they rarely feature the head of government of a close US ally speaking, in effect, as if the age of unquestioned American hegemony has ended.
Davos 2026 did.
The most telling line came not in the form of abstract admiration for India’s growth, but in the candour with which Europe framed its next move. The President of the European Commission said she would travel to India immediately after Davos, adding that “we are on the cusp of a historic trade agreement.” She then sketched the scale—an India–EU economic compact spanning around two billion people and roughly a quarter of global GDP—while signalling the strategic prize: Europe, she implied, wants a first-mover advantage in what it now recognises as the world’s most dynamic growth theatre (video clip).
Et tu, Carney?
Barely hours later, the Canadian Prime Minister Mark Carney sharpened the same underlying argument from a different angle—less celebratory, more cautionary. For middle powers, he suggested, this is “a rupture, not a transition”: a world where great powers increasingly treat economic integration as a weapon, tariffs as leverage, financial systems as instruments of coercion, and supply chains as strategic hostages. The subtext was unmistakable. Even America’s closest partners can no longer assume predictability from Washington—and that reality is nudging allies to seek additional anchors, with India and Europe increasingly central to that search.
It is tempting, especially in India, to treat this Davos moment as proof that the world has finally “woken up” to India’s rise. That reading is flattering—and shallow. India has not burst forth overnight; it has been marching—deliberately, often against the grain of prevailing orthodoxies—since 2014 under the leadership of Prime Minister Narendra Modi. The novelty lies less in India’s trajectory than in Europe’s belated recognition of it, and in the fact that, for the first time in decades, the United States is facing coherent strategic pushback not from adversaries but from its own closest partners.
At Davos, the Commission President did more than offer warm words. Speaking from the World Economic Forum’s most visible platform, she effectively codified a new geopolitical grammar. By invoking the sheer scale of the India–EU compact now within reach, she was not doing casual arithmetic. She was making a public declaration that Europe is prepared to shape the emerging order with India—rather than merely operate within a US-led framework that has dominated world trade and security since 1945.
The American trigger: volatility as policy
The catalyst for this shift is not India’s charm offensive. It is Washington’s behaviour.
The second Trump administration’s return to an “America First” nationalism—complete with fresh tariff threats and the theatrics of coercive bargaining—has rattled European capitals in a way that earlier disagreements over Iraq, surveillance, or burden-sharing never quite did. Davos itself became a theatre of allied unease, with European leaders openly framing the moment as a contest over rules and restraint, and reacting sharply to US pressure tactics and the casual use of tariff threats as geopolitical punctuation.
What Europe faces today is not tactical divergence over specific policy issues, but the spectre of a structurally unreliable United States: a partner that weaponises interdependence, treats economic ties as instruments of domestic performance, and views allies as clients to be disciplined rather than peers to be consulted. In such a climate, “strategic autonomy” is no longer a fashionable phrase from Brussels policy circles; it is becoming a hard requirement of statecraft.
For decades, Europe managed its vulnerabilities by doubling down on the transatlantic bargain. Security was effectively outsourced to NATO, whose decisive muscle was American; economic strategy assumed stable access to US markets, technology, and the dollar-centred financial system. Trump’s first term dented that assurance. His second has cracked it. When tariff threats can be issued as policy by press conference, and alliance reassurance becomes contingent on electoral mood swings, Europe’s old mental model stops working.
Reading Davos correctly: Europe’s independence moment
That is the backdrop against which Davos 2026 must be read. The Commission President was not simply praising India’s growth story. She was signalling something far more consequential: Europe’s decision to diversify risk away from an unpredictable United States by binding itself more tightly to a partner that shares at least some of its core instincts about a rules-based order, managed openness, and a multipolar distribution of power.
Her itinerary matters. A Davos declaration followed by a summit visit—timed tightly, publicly and at the highest level—communicates urgency: Europe wants this agreement done, and it wants it done in a way that visibly rebalances the world’s trade geometry.
India arrives not as supplicant, but as pole-in-the-making
Crucially, India enters this moment not as a supplicant but as a state that has spent the last decade building the very attributes Europe now seeks. Domestically, the Modi government has pursued a consistent—if sometimes noisy and uneven—project of national consolidation: tax harmonisation through GST, greater stress on formalisation, accelerating digital public infrastructure, and a visible turn to hard assets through large infrastructure outlays. These are not merely administrative reforms; they are the scaffolding of an integrated national market, the precondition for scale.
Externally, India has cultivated strategic autonomy with doctrinal discipline: deepening engagement with Washington without being absorbed into any single theatre’s strategy, maintaining energy realism with Russia while courting Western capital, and asserting an independent voice in multilateral forums from the G20 to BRICS. The fashionable vocabulary is “multi-alignment”, but the substance is clearer: India refuses to be neatly located in any bloc because its ambition is to become a pole.
This is precisely what appeals to Europe now. Anxious to reduce exposure to Washington’s volatility and Beijing’s coercive state capitalism, the EU is seeking partners that can anchor a more distributed, resilient global economy. India offers a rare combination: demographic depth, a large and growing domestic market, a democratic system (howsoever noisy and contested), and a willingness—sometimes understated, but real—to shoulder responsibility for global public goods, from climate transitions to maritime stability.
The FTA as strategy, not spreadsheet
The proposed India–EU free trade agreement must be read through this strategic lens, not merely as a bundle of tariff lines. If concluded, it will knit together European technology, capital and high-end manufacturing with Indian markets, services capacity, and the expanding intermediate manufacturing base that “China-plus-one” strategies now require. It will allow European firms to diversify supply chains away from excessive China dependence into what Brussels increasingly acknowledges as the fastest-growing major economy, while giving Indian exporters preferential access to one of the richest consumer markets on earth.
In that sense, this is neither a classic North–South bargain nor a simple South–South partnership. It is a wager on a post-hegemonic world—one in which rules, standards, and market access will be contested among multiple centres rather than dictated by one. No wonder the phrase “mother of all deals” has stuck to the negotiation.
Security: the quiet second pillar
This emerging compact is not just about trade. Security is the other axis on which it challenges American primacy. The United States remains the world’s pre-eminent military power. Yet its credibility as a security provider is increasingly tethered to domestic electoral cycles and the temperament of a single occupant of the White House. Europe cannot ignore Ukraine, the Mediterranean and the High North; India cannot ignore the Indian Ocean, the Himalayas, and the wider Indo-Pacific. Both recognise that dependence on Washington’s mood swings is strategically untenable.
In response, embryonic forms of security cooperation between India and Europe have been thickening: maritime domain awareness, naval engagement, defence-industrial conversations, and the EU’s growing interest in the Indo-Pacific as a theatre where it has autonomous stakes, not merely alliance obligations. This does not displace NATO, nor does it dissolve India’s security engagement with the US. But it introduces an additional axis of coordination—one that dilutes America’s monopoly over the security architecture of both Europe and the Indian Ocean region.
Not an anti-US axis, but a stabilising counterweight
To be clear, what is emerging is not a classic trade bloc or military alliance. India remains wary of binding commitments that constrain its freedom of manoeuvre; Europe is internally divided and institutionally encumbered. A more accurate metaphor is that of a counterweight: not in the sense of an anti-American axis, but as a stabilising mass in a system dangerously skewed by over-reliance on a single, increasingly capricious actor.
That is why the Davos speech resonated. When the Commission President spoke of the scale of the joint market and the GDP weight of an India–EU compact, she was not merely advertising commercial opportunity. She was sketching the outlines of a political economy in which the capacity to write rules, set standards and enforce norms will no longer be monopolised by Washington. Digital regulation, climate standards, AI governance, dispute resolution—on each front, a cohesive India–EU partnership can shape outcomes rather than simply react to them.
The hard parts—and the new stakes
The free trade agreement has been long stalled by familiar obstacles: European sensitivities on agriculture and labour, and Indian concerns over data governance, regulatory overreach and the protection of small producers. Those obstacles have not vanished. What has changed is the stakes. For Europe, the FTA is no longer just about market access; it is about strategic autonomy in a world where the US can no longer be assumed steady. For India, it is no longer only about tariff gains; it is about recognition as an indispensable partner in structuring the global order—alongside access to technology, investment and high-value supply chains.
That mutuality of existential interests is what can generate political will strong enough to override sectoral lobbies on both sides. Yet risks remain. Europe’s resolve could soften if Washington moderates its posture or offers side-payments. India’s bureaucracy could relapse into protectionist reflexes. Domestic politics—farmers in Europe, small industry in India—could still complicate ratification. These tactical constraints, however, should not obscure the structural reality: the India–EU equation has shifted from neglected side project to central pillar of how both sides imagine the 21st century.
What India and Europe must now do
For India, the moment calls for clear-eyed confidence rather than triumphalism. The temptation will be to read Davos as affirmation that “the world has woken up to India.” In truth, it is as much about Europe’s anxieties as India’s achievements. New Delhi’s task is to translate Europe’s anxiety into durable arrangements: lock in the FTA with safeguards that preserve policy space where it genuinely matters; secure technology and investment flows that accelerate manufacturing and skills; and shape the emerging security dialogue so it reinforces—rather than dilutes—India’s autonomy.
For Europe, the challenge is to move beyond rhetorical flourishes about strategic autonomy and accept the implications of a genuinely multipolar order. That means not merely hedging against Trump, but recalibrating the deeper mental habit in which the US is the default guarantor of last resort. It means treating India not as a convenient “swing state”, but as a partner whose domestic anxieties—development, employment, sovereignty—are integral to the bargain.
Eventful Day at Davos
Davos 2026, then, should be remembered not as the moment India suddenly appeared, but as the moment Europe finally adjusted its lenses—and the moment the cost of American unpredictability became unmistakable. In the days leading up to the gathering in Switzerland, President Trump had already set the tone by unveiling punitive tariffs on eight European nations, explicitly tying trade pressure to his Greenland demands. As Davos opened, he escalated further—circulating altered maps depicting Greenland as US territory and pointedly refusing to rule out the use of force.
By the time Canadian Prime Minister Mark Carney and several European leaders spoke of a rupture in the old order, markets were already absorbing the implications of policy-by-provocation. What followed was read by some analysts as a “sell America” tremor: US equities slid sharply, gold pushed to fresh highs, and Japanese bond yields jumped, sending ripples through US Treasury markets as investors rotated defensively. A rising India and a recalibrating Europe are discovering that their interests converge precisely when American hegemony looks not merely unsustainable, but actively destabilising. If the “mother of all deals” is indeed on the anvil, it is because both sides now see trade not as commerce alone, but as the architecture of power—and, increasingly, as insurance against chaos.
A rising India and a recalibrating Europe are discovering that their interests converge precisely when American hegemony looks not merely unsustainable, but actively destabilising. If the “mother of all deals” is indeed on the anvil, it is because both sides now see trade not as commerce alone, but as the architecture of power—and, increasingly, as insurance against chaos.