India’s global trade posture is facing its most complex test in years. With retaliatory tariffs now filed at the WTO, a high-stakes deadline approaching with the United States, and rising regulatory pressure from Europe, the country’s ability to strike a balance between sovereignty and global integration is under scrutiny. At the same time, an inherent dependence on China continues to constrain India’s room for manoeuvre.

The rest of 2025 may well decide whether India becomes a rule-shaper in global trade—or remains a reactive player in an increasingly fragmented world.

US Deadline and WTO Retaliation

On May 3, the U.S. imposed a 25% safeguard tariff on Indian auto exports, citing national security concerns. In response, India has filed a formal complaint at the World Trade Organization (WTO) and notified its intent to impose retaliatory duties on U.S. imports worth $725 million—a rare but significant escalation.

This comes as both countries attempt to resolve broader trade disagreements by July 9. Key sticking points remain: India’s digital services tax, limits on agricultural and dairy access, and regulations on cross-border data flows.

While a deal could unlock $25 billion in new Indian exports and $15–20 billion in U.S. investments, the outlook is dimming. Commerce Minister Piyush Goyal has rejected deadline diplomacy, stating recently that “India signs trade deals in its national interest—not to meet foreign timelines.” It’s a politically resonant message, but it also narrows the path to compromise.

If the deadline passes without resolution, tariffs of up to 26% on Indian goods will likely take effect, directly hitting textiles, pharmaceuticals, jewellery, and engineering exports.

Europe: Green Rules, Grey Areas

While Washington remains the immediate concern, India’s trade relationship with Europe is approaching a different kind of inflection point.

The EU’s Carbon Border Adjustment Mechanism (CBAM), set to fully apply from 2026, will impose levies on carbon-intensive imports like steel, aluminium, and cement. Indian industry has voiced concern, and New Delhi has called the measure discriminatory at the WTO. Yet there's growing internal recognition that aligning with EU sustainability standards could unlock significant opportunities—especially in green hydrogen, renewables, and electric mobility.

An internal Commerce Ministry report from June estimates that compliance with green standards could attract $50–60 billion in investment by 2035. However, the long-pending India-EU Free Trade Agreement, in negotiation since 2007, remains stalled. EU officials warn that if substantial progress is not made by early 2026, the political appetite for a deal could vanish—particularly amid rising protectionism in Europe.

The China Constraint

Even as India talks up self-reliance and diversification, it remains deeply dependent on China for key inputs. In FY2024–25, bilateral trade exceeded $110 billion, with China remaining India’s top supplier of electronics, industrial machinery, and active pharmaceutical ingredients.

A sharp 60% drop in Chinese rare earth exports this April disrupted Indian electric vehicle manufacturing—highlighting just how brittle alternative supply routes still are. Despite diplomatic friction, India lacks the industrial depth to delink quickly from China, and substituting imports from Vietnam or Africa will require years of policy commitment and logistical overhaul.

Cost of Delay

India's current hesitation carries tangible risks. Without a US deal, tariffs will directly erode price competitiveness in global markets. Investors tracking India’s manufacturing and export growth may turn cautious, especially as Vietnam and Mexico continue to deepen trade ties with advanced economies.

Moreover, India risks missing the “early-mover advantage”. Trade pacts signed in time—especially with the U.S. and EU—bring compounding benefits in investment, technology access, and regulatory alignment. Delay hands this advantage to others.

Meanwhile, political pressures at home—particularly over dairy and farm market access—limit room for liberalisation. But as former Chief Economic Adviser (CEA) Arvind Subramanian recently warned, "India’s trade hesitancy is no longer neutral—it is actively weakening its strategic leverage."

Regional Signal

India’s WTO retaliation also sends a message beyond Washington. It reinforces India's positioning as a rules-based actor in global trade governance—something smaller South Asian economies, from Nepal to Bangladesh to Sri Lanka, are watching closely. If India can assert its interests without abandoning trade norms, it may strengthen its regional leadership claim.

But hesitation has a flip side. Vietnam is outpacing India in electronics exports. Bangladesh continues to expand its textile footprint. India’s choices in 2025 could shape not just its global standing—but its place within South Asia’s trade map.

From Hesitation to Agility 

India’s long-running pursuit of strategic autonomy must now evolve into strategic agility. That means building credible negotiating leverage, investing in compliance capacity, and seizing trade opportunities—not deferring them until the political climate improves.

The world is moving quickly. If India fails to engage decisively now, it may find the rules already written—without its input. The choice isn’t between protectionism and surrender. It’s between passivity and purposeful integration.

(The author is an economist and research partner at the South Asia Institute of Research and Development in Kathmandu, Nepal. Views expressed are personal. He can be contacted at sahasranshu.dash@gmail.com )