Focus Europe

“Focus Europe” features studies of strategic developments and security issues in Europe, the progress of India-EU relations, and India’s ties with major European powers. The focus of this month’s issue is on evolving EU-China relations and implications for India.

On 29 May 2026, the European Commission described the existing EU-China trade and investment relationship as ‘not sustainable’. The trade numbers help explain the underlying concern: Europe continues to import heavily from China even as its exports to China have significantly declined. The result is a large and growing trade imbalance as well as continuing European dependence on China in several important sectors.

Europe had already learnt the risks of excessive dependence through two major shocks. The Covid-19 pandemic exposed the vulnerability of global supply chains when essential goods originate from a limited number of sources. The Russia-Ukraine war brought home an even harsher lesson: Europe’s heavy dependence on Russian energy demonstrated how an economic relationship could become a strategic vulnerability during a geopolitical crisis.

Europe’s answer is not to decouple from China, but to de-risk. It will continue trading with China, but wants to reduce dependence in critical sectors and diversify suppliers and markets. New trade agreements, strategic partnerships  and China+1 strategies are part of this shift. Australia, Japan and South Korea are pursuing similar diversification.

China is pushing back. Beijing argues that de-risking can become protectionism and has warned of countermeasures against discriminatory European restrictions. Europe and Chinaremain deeply intertwined economically even as strategic tensions increase.

For India, this creates an important opportunity: it is one of several countries that can benefit from Europe’s search for alternative markets and supply chains. The EU and India concluded negotiations on their Free Trade Agreement in January 2026, and the third meeting of the EU-India Trade and Technology Council was held in July. Together, the FTA and TTC give the relationship both a commercial and a technological dimension.

The FTA could provide an immediate boost to Indian exports, particularly for labour-intensive industries. The benefits also run in the other direction. Greater market access for European high-technology goods can help India diversify its own sources of imports, reduce input costs and integrate Indian businesses more deeply into global supply chains. The TTC takes the relationship further, opening possibilities for cooperation in semiconductors, AI, quantum technology, 6G, clean technology, pharmaceuticals and EV infrastructure.

However, agreements alone will not deliver these gains. India now has to do the difficult work at home: attract investment, encourage joint ventures, boost manufacturing, improve infrastructure and skills, deepen domestic supply chains and create a predictable environment in which European and Indian companies can invest together. Europe’s de-risking strategy has created a genuine strategic opportunity for India, but it is a conditional one. Europe has created the opening; India must now convert geopolitical opportunity into economic capability expansion.

To read this Issue please click Focus Europe, Vol. II, Issue 8.