When Trade Becomes Strategy: How Geopolitical Rivalry Is Reshaping India’s Economic Partnerships

A free-trade agreement is supposed to make borders matter less.

But what if the world is moving in the opposite direction?

India is signing more trade agreements at precisely the moment when trade itself is becoming more political. The logic appears contradictory. If globalisation is fragmenting, why deepen economic integration with more countries?

The answer lies in what India increasingly wants these agreements to do.

They are no longer only about lowering tariffs and selling more goods. They are also about ensuring that India has somewhere else to turn when a major market becomes unreliable, a critical supplier becomes politically difficult, or economic interdependence itself becomes a source of pressure.

That does not mean every Indian trade agreement is primarily geopolitical. Nor does it mean diversification has already produced strategic autonomy.

It means the function of trade policy is changing.

The old logic of trade is becoming insufficient

For much of the globalisation era, the basic economic logic was straightforward: countries specialised, traded across borders and bought from whoever could supply something most efficiently.

Under that model, dependence was largely an economic calculation. If one country produced a component more cheaply, importing it made sense. If another offered a larger market, exporting there made sense. Efficiency mattered more than the political identity of the trading partner.

But that assumption becomes fragile when the things being traded are strategically important.

A country may be able to replace a supplier of ordinary consumer goods. Replacing the supplier of a critical pharmaceutical ingredient, semiconductor technology, rare mineral or advanced industrial component is much harder.

This is where geopolitics enters the economics of trade.

India’s pharmaceutical industry, for example, has developed significant capabilities in generic medicines while remaining dependent on China for a large share of the active pharmaceutical ingredients that form their chemical base. Similar dependencies exist across electronics, solar equipment and rare-earth-related supply chains. The broader vulnerability is not simply that India imports. It is that some imports sit inside systems where alternative suppliers cannot be created overnight.

Dependence therefore acquires a second meaning.

It becomes a question of strategic exposure.

When interdependence becomes leverage

The most important change in the global trading system is not that countries have stopped depending on one another.

It is that governments increasingly recognise that dependence can be converted into leverage.

The United States and China have both demonstrated the ability to use access to markets, technologies or critical goods as instruments of state power. China’s restrictions on certain exports during periods of tension with India, combined with India’s dependence on Chinese inputs in strategically important sectors, illustrate how such leverage can operate. Additional US tariffs imposed on Indian goods in August 2025 also show that even relationships described as strategically important can contain significant economic leverage.

This changes the meaning of economic security.

The question is no longer simply:

How cheaply can India obtain something?

It increasingly becomes:

How safely can India continue to obtain it if the political relationship changes?

That distinction is fundamental.

A concentrated supply chain may be efficient in normal conditions. But its efficiency can become a vulnerability during geopolitical disruption.

The same logic applies to markets. If a country’s exports are heavily concentrated in a small number of destinations, a sudden tariff increase, regulatory restriction or political dispute can transmit external shocks directly into domestic industries.

Diversification therefore becomes a form of insurance—not against trade itself, but against the possibility that trade becomes conditional on political relationships.

This helps explain India’s turn toward bilateral agreements

India’s recent trade-policy pattern becomes more intelligible through this lens.

After withdrawing from the Regional Comprehensive Economic Partnership in 2019 over concerns including agriculture and rules of origin, India subsequently built a series of bilateral and smaller-scale arrangements with partners including Australia, the UAE, EFTA, the UK, Oman and New Zealand. The pattern is significant not because every agreement has the same purpose, but because India has increasingly sought multiple channels through which goods, services, investment and economic relationships can flow.

The Ministry of Commerce’s 2025–26 overview records this renewed FTA activity across agreements involving the European Union, New Zealand, Oman and the United Kingdom, while also distinguishing agreements that had been announced or signed from those awaiting ratification or implementation.

The India-New Zealand agreement illustrates the broader logic.

It provides duty-free access for Indian exports to New Zealand while also addressing services, investment, regulatory cooperation and mobility. New Zealand has committed to facilitating $20 billion of investment into India over the coming decade and a half. The agreement also deliberately protects sensitive Indian agricultural sectors rather than treating liberalisation as an all-or-nothing exercise. The Commerce Ministry’s official factsheet describes 100% duty-free access for Indian exports to New Zealand, alongside safeguards for sensitive sectors and the investment and mobility provisions.

The point is not that New Zealand can replace a major global power.

It cannot.

The point is that a network of relationships can provide options that a single relationship cannot.

The same logic is visible in India’s agreement with Oman, where market access is connected with potential cooperation in logistics, infrastructure, energy transition and access to wider markets.

This is a different way of thinking about trade diplomacy.

A country does not need every partner to be economically indispensable. It needs enough partners to prevent any single relationship from becoming indispensable to itself.

The real value of an FTA may therefore lie outside the tariff schedule

This is where the conventional understanding of free-trade agreements begins to look incomplete.

An FTA is usually judged by tariff reductions, export growth and changes in bilateral trade.

Those remain important.

But strategic diversification adds another layer: option value.

Suppose India has multiple markets for its exporters, multiple suppliers for critical inputs and multiple partners capable of providing investment or technology.

The value of that network cannot be captured entirely by the additional exports generated by any one agreement. Its value also lies in reducing the consequences of disruption elsewhere.

That is why smaller agreements can matter even when their immediate trade volumes are modest.

The India-Oman agreement, for example, may not transform India’s overall trade balance. But its stated potential to connect Indian businesses with markets across the Gulf, eastern Europe, Central Asia and Africa gives the relationship a function beyond bilateral tariff reduction. The Commerce Ministry says the Oman CEPA provides duty-free access covering 98.08% of tariff lines and 99.38% of India’s export value, while also containing services and mobility commitments.

Trade agreements can consequently act as geopolitical backstops.

Not because they guarantee protection from geopolitical shocks, but because they create additional channels through which economic activity can be redirected.

The distinction matters.

A backstop creates an alternative. It does not eliminate the original risk.

But diversification is not the same as resilience

There is a danger in taking this argument too far.

Signing more agreements does not automatically make an economy more resilient.

India’s own experience demonstrates why.

Earlier agreements with ASEAN, Japan and South Korea did not automatically translate into stronger export performance. Commerce Ministry data show that India’s trade deficit with ASEAN increased from $7.06 billion in 2008–09, before the relevant FTA period examined by the Ministry, to $25.75 billion in 2021–22. For Japan, the corresponding deficit moved from $3.54 billion in 2010–11 to $8.22 billion in 2021–22, while South Korea’s moved from $5.16 billion in 2009–10 to $9.39 billion in 2021–22. These figures describe changes in trade balances; they do not, by themselves, establish that the FTAs caused those changes.

This does not prove that FTAs caused those deficits.

It reveals something more important: market access alone does not create export competitiveness.

If domestic firms lack productive capacity, infrastructure, technology, standards compliance or the ability to navigate rules of origin, tariff preferences may remain underused by Indian exporters.

The problem can become asymmetric. Foreign exporters may gain easier access to India’s market while Indian exporters struggle to use the preferences available to them abroad.

That asymmetry is visible in estimates that only around 20–30 per cent of eligible Indian exports make use of FTA preferences, compared with substantially higher utilisation on the import side.

The implication is crucial for the geopolitical argument.

An FTA can create an alternative economic channel. But only a competitive domestic economy can fully exploit it.

The institutional response is also visible in India’s continued review of existing agreements. The Ministry of Commerce has been conducting the review of the ASEAN–India Trade in Goods Agreement through its Joint Committee, including meetings in 2025 and 2026. The Ministry has also described FTA evaluation as a continuous process, with studies undertaken before negotiations and joint review mechanisms built into agreements.

The missing link is domestic capability

This is why India’s trade strategy cannot be separated from industrial strategy.

Trade agreements open doors.

They do not teach firms how to walk through them.

Evidence from India’s global-value-chain integration reinforces this limitation. Available estimates put India’s GVC integration as a share of gross trade at 37.13 per cent before declining to 34.38 per cent, with declining GVC trade shares across several major FTA partners.

The deeper lesson is that integration cannot be negotiated entirely at the border.

It has to be built inside the economy.

Factories need to meet international standards. Logistics need to work. Firms need information about foreign markets. Certification systems need to be usable. Infrastructure has to reduce transaction costs. Domestic suppliers need to become capable of participating in cross-border production.

There is also a concrete institutional requirement behind this process. Under India’s preferential trade regime, exporters seeking preferential tariff treatment must meet the applicable rules of origin and obtain the required Certificate of Origin. The Ministry of Commerce and DGFT have moved preferential Certificates of Origin onto the common eCoO 2.0 platform, making certification part of the practical process through which exporters claim negotiated preferences.

Without these capabilities, an FTA remains largely a legal opening.

With them, it can become an industrial platform.

That distinction explains why the newer generation of Indian agreements increasingly contains provisions extending beyond tariffs into services, investment, regulatory cooperation, mobility and supply-chain relationships. The trade agreement becomes a framework within which productive relationships can deepen rather than merely a schedule for reducing customs duties.

The Indo-Pacific illustrates the new geometry of trade

The transformation is particularly visible in India’s relationship with the Indo-Pacific.

The old question was:

Which regional trading bloc should India join?

The emerging question is more selective:

Which economic relationships can give India useful access without creating excessive dependence?

India’s withdrawal from RCEP and its subsequent agreements with individual partners should therefore not be reduced to a simple story of protectionism versus openness.

The pattern is more complicated.

India has moved away from one large regional framework while simultaneously pursuing a wider network of bilateral arrangements. That suggests an attempt to balance openness with control over the terms and sequencing of integration.

This approach carries a trade-off.

Large multilateral agreements can generate scale and integrate economies into regional production networks. Bilateral agreements can offer greater control over sensitive sectors and allow negotiations to be tailored to specific partners.

Neither model is automatically superior.

But the shift tells us something about India’s strategic calculation.

India increasingly appears to be treating the architecture of trade itself as part of economic security.

And yet, the largest relationships still matter

There is another qualification that prevents the diversification story from becoming too neat.

Diversification does not mean that India can simply replace its largest economic relationships with a collection of smaller ones.

The broader trade picture points to the continuing importance of the US market and the substantial commercial relationship between the two countries. India also continues to face significant dependence on China in goods and critical inputs.

This creates the central tension in India’s strategy.

India wants more options.

But options do not erase existing dependencies overnight.

The objective is therefore not necessarily to stop trading with major powers. It is to ensure that economic engagement with any major power does not leave India without alternatives.

That is a very different definition of strategic autonomy.

It is closer to strategic flexibility.

And flexibility is easier to build than autonomy because it does not require India to become self-sufficient or detached from the global economy.

It requires India to have enough relationships that dependence becomes manageable.

The real test begins after the agreement is signed

This is why the most important part of India’s FTA strategy may not happen at the negotiating table.

It happens afterwards.

The same institutional problem recurs across India’s trade experience: exporters need support with standards, infrastructure, technology, market intelligence, certification and regulatory compliance if negotiated preferences are to translate into actual market access.

This changes the role of the trade agreement itself.

An FTA is not the outcome.

It is an enabling institution.

Its success depends on what happens around it.

A country can sign an agreement that provides extensive tariff preferences and still fail to capture much of the potential benefit. Conversely, a carefully designed agreement combined with productive investment, infrastructure and competitive firms can become part of a much larger transformation in how an economy participates in global value chains.

That is why the expansion of India’s FTA network should not be read simply as a count of agreements.

The more important question is what economic capabilities those agreements are connected to.

From market access to strategic optionality

This is the deeper transformation underway.

For decades, the dominant economic argument for trade was that openness improves efficiency.

That logic has not disappeared.

But geopolitical fragmentation has added another objective: optionality.

India needs access to markets, but it also needs alternatives.

It needs imported inputs, but it also needs multiple potential suppliers.

It needs foreign investment, but it also wants investment relationships that strengthen domestic productive capacity.

It needs global value chains, but it increasingly has to think about how vulnerable those chains become when concentrated in politically sensitive locations.

This is why trade agreements are acquiring a geopolitical function.

Not because tariffs have suddenly become irrelevant.

But because the strategic value of a trade relationship increasingly depends on what it allows a country to do when another relationship becomes uncertain.

That also explains why India’s recent agreements should not be interpreted as proof that strategic autonomy has already been achieved.

The evidence is much stronger for strategic intent than for a demonstrated long-term reduction in vulnerability.

India’s trade deficits with several existing FTA partners, uneven utilisation of preferences and weak GVC integration show that diversification can create new relationships without automatically creating resilience.

The defining shift, therefore, is not that India is moving away from globalisation.

It is that India is trying to make globalisation less dependent on any single relationship.

That is what happens when trade becomes strategy.

The future of economic power may belong not simply to countries that trade the most, but to countries that can keep trading when the political map around them changes.