India Becomes Top Growth Alternative for European SMEs Amid US Trade Reset

The political trade understanding between the United States and the European Union, commonly referred to as the Turnberry framework, is steadily creating what policy analyst Prasoon Sharma describes as a two-tier transatlantic trade environment.

"The Turnberry framework is effectively creating a two-tier transatlantic trade environment. Large multinationals can localise production, optimise tax and compliance structures, and lobby for carve-outs, whereas small and medium-sized enterprises (SMEs) face fixed compliance costs that often exceed their entire US profit pool, making the market economically irrational," Sharma told ANI.

The agreement, formalised in 2025 through the EU-US framework aims to recalibrate tariffs and reduce the US trade deficit. However, according to Sharma, its operational impact is asymmetric. Large corporations are equipped to adapt through localisation and regulatory optimisation. SMEs are not.

"As a result, SMEs are being squeezed out de facto, even without formal exclusion," he said.The stress is already visible across sectors. Beyond agri-food, European industrial machinery, automotive components, chemicals and EV-linked supply chains are facing mounting tariff and compliance costs.

"Industrial machinery and capital goods are experiencing margin compression as firms absorb tariffs to maintain U.S. market share," Sharma noted. Automotive suppliers are exposed to local-content rules, while speciality chemicals face weaker pricing power.

Importantly, firms are not exiting dramatically. "Most European firms are not visibly exiting the US. Instead, they are absorbing tariff costs, accepting lower returns, and quietly deprioritising US growth in capital allocation models, a slow erosion of competitiveness rather than a dramatic retreat," he explained.

However, some sectors remain structurally tied to US demand. "High-end pharmaceuticals, medical devices, and aerospace components remain structurally tied to US demand due to regulatory scale, procurement budgets, and ecosystem depth that are not easily replicated elsewhere," Sharma said.

However, others can pivot, "Industrial machinery, energy transition technologies, and infrastructure and logistics services align well with growth in India, ASEAN, and the Middle East," he added.

This is where the strategic shift becomes evident. India sees an opportunity to become the primary alternative growth market for European firms, reassessing their US exposure, mainly in the SME sector.

"As the transatlantic system drifts toward a two-tier structure favouring multinationals, India can absorb European SMEs that are being priced out of the US market," Sharma noted.

He argues that India offers three decisive advantages; lower fixed compliance costs relative to US regulatory regimes, flexibility in negotiating sector-specific entry pathways, and a large domestic market that rewards incremental scale rather than immediate dominance.

"If India positions itself deliberately, it could become the default secondary market for firms exiting marginal US exposure," he said.

Sharma emphasised that India can fast-track regulatory convergence in areas where European firms are competitive, industrial machinery, clean energy equipment, rail, urban infrastructure and precision manufacturing, while offering scale without subsidy nationalism, contrasting it with both US and Chinese models.

Crucially, he added, "India provides European firms with something the US no longer offers: predictable long-term demand growth without politicised trade conditionality."

The EU-India Free Trade Agreement is expected to reinforce this shift by lowering tariffs and regulatory friction across industrial goods, clean technology and services, anchoring India as a primary manufacturing and demand partner for Europe.

Strategically, this realignment strengthens Europe's supply-chain diversification while positioning India as the natural destination for firms rebalancing away from both the US and China, particularly those European SMEs that now find the American market economically untenable.

- ANI