Daybreak - The "mother of all trade deals" promises cheaper imports. Prices are another story

Episode Date: January 28, 2026

This week, India and the European Union signed a sweeping trade deal that cuts or removes tariffs on over 90% of goods traded between them. The headlines quickly focused on what might get cheaper, from wine and cheese to cars and chocolates. But trade deals do not change prices overnight. Tariff cuts roll out over time and work their way through importers, distributors, taxes, and markets before they ever reach consumers. In this episode, host Snigdha Sharma looks at what past trade deals show about everything between a trade deal being signed and actual prices changing for a consumer.Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. This week, India and the European Union signed what the European Commission President Ursula von der Leyen described as, The Mother of All Deals.

Under the agreement, tariffs will be cut or removed on a about 96% of goods traded between India and the EU. Import duties on European cars are set to fall from levels as high as 110% to around 10% with similar phased cuts for wine, spirits, machinery, and chemicals. Almost immediately after the announcement, the conversation has shifted to one question. What gets cheaper? European wine, cheese, chocolates and cars, of course. Now, the assumption behind this is quite natural. If tariffs come down, prices should follow because that is how trade liberalization is supposed to work.

But here's where the story gets more complicated. Trade agreements do not operate like budget announcements. They don't change prices overnight and they do not affect every product the same way. In fact, history shows that even larger tariff cuts often take years to show up in consumer prices. And sometimes they don't show up at all. And that is because tariffs are just one layer in a much larger pricing system. Between a customs duty and a consumer price tag sit importers, distributors, retailers, domestic taxes, state level regulations and long-term contracts which are already locked in at older prices. Each of those layers respond to changes in their

own timeline. And the India-EU deal is no different. Many tariff cards are phased over several years. Some apply only to limited quantities, other lower costs for businesses long before they lower prices for consumers. And in sectors like alcohol, automobiles, domestic taxes and market structure play a far bigger role in pricing than customs duties ever did. So while the headlines focus on what might get cheaper, the more important question is what actually happens between a trade agreement being signed and prices changing in the real economy. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Dha Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague, Rachel Vargis and

I will come to you with one business story that is worth understanding and worth your time. Today is Thursday, the 29th of January. So when people talk about this deal, the conversation quickly lands on wine, cheese, chocolates and cars, because that is where the public interest is right now. But the agreement itself starts working somewhere else. So let us look at what this deal is all about in the first place. The India-EU trade deal resets tariff rules for more than 90% of goods traded between the two sides. Some of those changes apply immediately, many others are scheduled over time.

The key thing is that the agreement lays out a calendar, product by product, sector by sector, of how costs will evolve. India removes tariffs right away on about 30% of European goods. For everything else, reductions are written into future phases. That includes several of the products making the headlines. Wine, beer, spirits, which currently face import duties of more than 36% are of course covered by the deal. But those tariffs will come down in stages. Each cart applies only to shipments cleared after that phase begins. Importers will be tracking those dates closely because they will determine when the new core structures actually kick in.

Cheese and other processed foods are included as well, again with phased reductions. Some agricultural products remain excluded, but for many European food items, the deal creates a clear pathway for lower duties over time rather than an immediate change at the border. Cars, meanwhile, sit in a category of their own. India will allow up to 250,000 European cars a year under a quota system. Within that quota, tariffs start at about 30 to 35% and then move down further to about 10% over 5 to 10 years. On the industrial side, the deal removes or reduces tariffs on machinery, chemicals and pharmaceuticals, where duties currently range from 11 to more than 40%.

The European Commission estimates that once these changes are fully in place, EU could save around €4 billion a year in duties. The EU, in return, is removing tariffs on 90% of Indian goods immediately, rising to 93% within 7 years. This covers textiles, garments, leather goods and gems and jewelry, which are sectors that face pressure after the Trump tariffs. For those exporters, Europe now offers a clearer, more stable market. So, at this stage, what the deal really does is lock in access and timelines. Companies will start adjusting plans, contracts and supply decisions around these schedules.

Stay tuned to understand why price changes actually arrive much later, even when the tariff math looks dramatic on paper. To understand why prices often take so long to change, it helps to look at what's happened in previous trade agreements. One of the most closely tracked cases comes from research at Harvard Business School, which followed how companies responded to tariff changes during the U.S.-China trade war. The researchers looked at thousands of products across retail categories, and what they found was simple and a little counterintuitive. Changes in tariffs showed up quickly in import costs, but much more slowly and unevenly in retail prices.

In fact, in many cases, retailers did not adjust prices at all. And when they did, the changes were often small, delayed or temporary. The study also found that companies used tariff-related cost changes to manage margins, hedge against uncertainty or absorb other rising costs rather than immediately passing them on to customers. And that behaviour matters here because it shows that even when tariffs move sharply, prices do not automatically follow. Businesses treat tariff changes as one input among many. Rent, wages, logistics, marketing costs and taxes all compete for attention in pricing decisions. Then there is also an asymmetry in how prices move. The Howard research showed that

companies are generally quicker to raise prices when costs go up than they are to cut prices when costs fall. Lower costs tend to get absorbed quietly across balance sheets, especially in categories where consumers are less price sensitive. And that pattern shows up clearly in premium goods. Imported wine, cheese, European cars all fall into that category in India. These products bought occasionally are not weekly staples. Demand does not swing sharply with small price changes and that gives sellers room to hold prices steady even when costs begin to ease. Which is why most of the tariff cuts in the India-EU deal are going to be phased over several years, especially for sensitive sectors like alcohol, automobiles and processed foods.

Some duties will be reduced early, others will come in gradually in steps that stretch 5, 7 and even sometimes 10 years. Also, there are other factors. Wine is actually a good example. Yes, import duties on European wine are expected to come down over time, but even when the deal kicks in, alcohol pricing in India is shaped way more by state excise duties than by custom tariffs alone. Basically, alcohol taxes are set by states and not the centre and those Levi's can account for a very large share of the final retail price. So, even when import duties fall, state taxes stay exactly where they are. Basically, Delhi does sign the trade deal, but states will ultimately decide how expensive your wine is. Also, important to remember is that

consumer prices tend to respond only when competition intensifies, when more suppliers enter the market, volumes rise and retailers start fighting for market share. And that process takes time. So, when people expect this deal to quickly make European goods cheaper, they are really expecting the final step of a long chain to happen first. Trade agreements rearrange incentives long before they rearrange the price tags. And that is a real answer to the question at the heart of this episode. Between a deal being signed and prices changing in the real economy is a long stretch of adjustment, inside companies, inside supply chains and inside markets. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform.

What you're listening to is just a small sample of a subscriber-only offerings and a full subscription offers daily long-form features. stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted and produced by my colleague Snitha Sharma and edited by Rajiv Sien.