As a result, rather than across-the-board liberalization, states rely on bilateral and regional trade agreements that often protect sensitive domestic industries. This shift intensified during the Trump years, when tariffs were used as tools of geopolitical leverage and countries sought to secure preferential access. India has also signed a number of agreements, including those with the EU and the US.
While today’s FTAs are increasingly driven by geopolitical and supply chain considerations, past experience shows that they deliver results only when supported by competitiveness, infrastructure and domestic reforms.
Protectionist pressures
The ratio of world trade in goods to GDP, which peaked at 51% before the global financial crisis, has remained broadly stable over the past decade, ranging between 41% and 48%.
Even after upheavals such as the covid pandemic and the Russian invasion of Ukraine, trade flows did not collapse. Firms have rerouted supply chains, diversified resources and found new markets, keeping global trade resilient despite geopolitical tensions. While the world economy is not yet closing its doors, the fault lines have been deepening since Donald Trump took office for the second time in January 2025.
WTO analysis shows that trade coverage of import-related measures implemented between October 2024 and October 2025 rose to $2.64 trillion, accounting for 11.1% of world imports, more than four times the $611 billion recorded a year earlier.
Trump has increasingly imposed tariffs as geopolitical tools, with justifications ranging from correcting historic trade deficits to addressing national and international security concerns. For example, India faced 25% punitive duties on purchases of Russian oil. Making trade deals in this environment is less about textbook efficiency gains and more about securing supply chains, reducing political uncertainty and insulating exports from arms tariffs.
Power blocs
Cross-border trade is heavily concentrated in a handful of large economic blocs. Just six trade groups account for roughly 60% of global merchandise exports and imports.
The European Union (EU), the United States-Mexico-Canada Agreement (USMCA), and the Association of Southeast Asian Nations (Asean) together control more than half of world trade. These blocs increasingly set standards, shape supply chains and influence the direction of capital flows, making access to them critical for export-oriented economies.
Furthermore, while overall world trade growth slows during crises, trade within the bloc tends to remain relatively resilient. A study by the International Monetary Fund (IMF) shows that in the period after the Russian invasion of Ukraine, the average quarterly growth of trade between the geopolitically distant blocs was almost 5 percentage points lower than in the pre-war years. In contrast, intra-bloc trade saw a much smaller decline of around 2 percentage points. Investment patterns show a similar bias towards peers within established groupings.
Staying out of major trade arrangements therefore carries tangible risks for countries. Exporters may face greater barriers and investment may shift to competitors with preferential access. Being part of major deals, on the other hand, offers insulation, predictability and assured market access.
Rare achievements
While trade agreements may be a must today, India’s past experience with FTAs is impressive. Among the major agreements signed earlier, only the South Asian Free Trade Agreement (Safta) with South Asian Association for Regional Cooperation (Saarc) countries produced a trade surplus. In most other cases, India ended up buying far more from its FTA partners than it sold to them.
According to NITI Aayog, India’s exports to FTA partner countries stood at $38 billion in July-September 2025, while imports rose to $69.8 billion, leaving a trade deficit of $31.8 billion. Every recent quarter has seen imports outpacing exports and steadily deepening.
Import growth was driven by higher inflows from Asean, Safta, Japan, Thailand and Singapore. These supplies largely include energy products, machinery, electronic components and chemicals, which are critical inputs that domestic industry cannot fully supply. In contrast, exports to key FTA markets such as Asean, Malaysia and Singapore fell sharply, with only a few destinations posting modest gains.
Thus, while tariff cuts have made partner country goods cheaper in India and boosted imports of intermediates and fuels, export gains have lagged, reflecting limited integration into global value chains and weaker manufacturing competitiveness.
Hidden obstacles
Most trade deals focus on reducing tariffs, but tariffs are only part of the story. Non-tariff measures (NTMs) are often just as important. These include product standards, technical regulations, hygiene and phytosanitary rules, licensing requirements, quotas, environmental standards and testing and certification procedures. While many are introduced for legitimate reasons such as safety or sustainability, they can increase compliance costs and slow market access.
Evidence of this is the free trade agreement between India and the EU. Under the finalized deal, India will remove tariffs on 93% of EU imports by value, while the EU will do so on 99% of Indian exports. On paper, this signals deep tariff liberalization. However, the coverage of imports under the EU NTM is significantly higher in most sectors. For chemicals, machinery, metals and transport equipment, almost the entire import basket faces NTM in the EU compared to much lower coverage in India.
Also, for Indian exporters, particularly in steel and aluminium, the EU’s carbon cap adjustment mechanism imposes carbon costs based on emission intensity. Even if tariffs drop to zero, compliance with environmental standards and reporting requirements could pose significant hurdles. Market access therefore depends on both regulatory compliance and rate reductions.
Manufacturing discrepancy
Even as new trade deals lower tariffs and expand market access, export gains for India are not automatic. A relatively narrow manufacturing base limits the country’s ability to respond to increases in foreign demand, while competitors such as China, Vietnam and Bangladesh are better positioned to seize new opportunities with stronger and more productive manufacturing ecosystems.
Setting up factories in India remains costly and complex due to high logistics costs, expensive and unreliable commercial force, land acquisition challenges and regulatory hurdles.
Despite initiatives like Make in India and manufacturing incentives, manufacturing momentum outside of electronics is uneven. Credit constraints persist and exports continue to be concentrated among a small group of large firms.
The government is now trying to reposition India’s brand in the premium global markets of the US, UK and EU by promoting heritage and high value industries such as Banarasi and Kanchipuram silks, wellness products and select engineering goods through coordinated branding and export promotion.
However, branding cannot replace competitiveness. To benefit meaningfully from the new free trade agreements, India needs to deepen manufacturing capacity, improve infrastructure and logistics, and expand its exporter base. Without addressing these structural barriers, market access alone may not translate into sustained export expansion.
Puneet Kumar Arora is Assistant Professor of Economics at Delhi Technological University. Jaydeep Mukherjee is Professor of Economics at Great Lakes Institute of Management, Chennai.