German Chancellor Friedrich Merz’s first visit to Asia this week underscores Berlin’s accelerating effort to rebalance its economic and strategic partnerships as pressure mounts on Germany’s export-oriented model. With relations strained simultaneously with China – its largest trading partner – and the United States, Merz is positioning India as a long-term hedge for Europe’s biggest economy.
Meeting Indian Prime Minister Narendra Modi in Ahmedabad this week, Merz sought to translate political alignment into concrete commercial and security outcomes. The two governments signed 19 bi-lateral agreements and memorandums of understanding covering areas such as trade, defense cooperation, critical minerals, pharmaceuticals and labor mobility – sectors that align closely with Germany’s industrial priorities and India’s push to expand domestic manufacturing and diversify exports.
The timing of the visit is significant. Germany’s economy contracted in both 2023 and 2024, while trade tensions with Washington have intensified under US President Donald Trump. Trump’s renewed threats to annex Greenland have rattled European allies, while India continues to face US tariffs of up to 50% on key exports.
For both Berlin and New Delhi, deeper bilateral engagement offers a partial buffer against growing geopolitical and trade volatility.
Merz’s stop at Mahatma Gandhi’s ashram carried symbolic weight. But the visit’s core message was commercial. He was accompanied by senior executives from Siemens, DHL Group, Infineon Technologies, Uniper, and Airbus Defence and Space. Also in tow were leaders from Germany’s Mittelstand – the small and mid-sized firms that account for more than half of Germany’s industrial employment, which have been disproportionately hit by weak global demand, high energy costs and slowing Chinese growth.
India’s macroeconomic trajectory strengthens its appeal. As the fastest-growing economy in the G20, with GDP growth exceeding 6%, India has emerged as a focal point of Germany’s Indo-Pacific strategy. Roughly 2,000 German companies operate in India, while more than 700 Indian firms have investments in Germany. Bilateral trade has surpassed the $50 billion benchmark, making Germany India’s largest EU trading partner, accounting for almost 25% of all trade with the European Union.
Berlin increasingly views India not as an alternative to China or the US, but as a critical third pillar.
EU-Indian Free Trade Agreement
A central objective of Merz’s visit was to accelerate negotiations on a long-pending EU-India free-trade agreement at the time of “the renaissance of unfortunate protectionism,” as described by the chancellor. EU and Indian negotiators are racing to resolve outstanding disputes over steel, automobiles and market access ahead of a planned visit later this month by the President of the EU Commission, Ursula von der Leyen.
During his first official visit as chancellor, Friedrich Merz said that the EU and India could conclude a long-awaited free trade agreement as early as the end of January. Such a development would carry added weight as global trade becomes more fragmented and trade negotiations between Washington and New Delhi show little progress.
For Germany, a free trade agreement would help offset slowing Chinese demand and provide preferential access to one of the world’s fastest-expanding consumer markets. For India, such a development would send a much needed signal to Washington that – in the face of a 50% US tariff rate on Indian goods – New Delhi is able to secure alternative commercial partners.
Defense and German submarines
Defence cooperation has emerged as a key pillar of the bi-leteral relationship. Germany and India are in advanced talks over a submarine manufacturing program valued at more than $8 billion, which would be India’s largest defense procurement to date. The proposed deal between Germany’s Thyssenkrupp Marine Systems and India’s state-owned Mazagon Dock Shipbuilders would reportedly include technology transfer and local production – aligning with India’s “Make in India” strategy and Germany’s interest in securing long-term industrial partnerships beyond arms exports.
Strategically, the submarine negotiations also reflect Western efforts to reduce India’s reliance on Russian military hardware.
India’s navy currently operates around a dozen ageing Russian submarines alongside six newer French-built vessels. New Delhi remains one of Moscow’s largest defense customers and, since Russia’s full-scale invasion of Ukraine in 2022, has also become a major buyer of discounted Russian oil. Although India has scaled back its purchases in recent months following US sanctions on Russian energy firms, its ties with Moscow remain strong.
Russian oil and war financing
On the role of energy cooperation between New Delhi and Moscow, Merz appeared to receive less clarity than he had hoped for during a 40-minute one-on-one conversation with Modi while travelling together by car. The German chancellor has been pressing India to scale back its purchases of Russian oil, which helps sustain Moscow’s war effort in Ukraine.
Despite the lack of a firm commitment, Merz struck a conciliatory note afterward, acknowledging India’s constraints as a country of roughly 1.4 billion people with limited domestic energy resources and little flexibility in sourcing its fuel supplies.
Merz’s official two-day visit continued to a Bosch facility in Bengaluru, reinforcing Germany’s emphasis on advanced manufacturing, automotive technology and supply-chain integration. The focus on industrial sites and corporate engagement reflects Berlin’s broader strategy: moving beyond symbolic diplomacy toward partnerships that deliver measurable investment, technology transfer and market access.
Taken together, the visit signals a shift in Germany’s India policy from opportunity-driven engagement to strategic necessity. As geopolitical fragmentation deepens and traditional trade relationships become less reliable, Berlin increasingly views India not as an alternative to China or the US, but as a critical third pillar in its long-term economic and security calculus.