Exit, not compliance

Posted on: 29 January 2026

Twenty years of stalled negotiations. Twelve months of sudden acceleration. The trade deal between the European Union and India, announced yesterday in New Delhi, covers two billion people and a quarter of global GDP. It's the largest bilateral agreement either side has ever signed.

Not a coincidence it materialised now.

The prevailing narrative is simple: Trump threatens, others react. But this reading misses the interesting mechanism. The point isn't that Europe and India "responded" to American pressure. The point is that the nature of the pressure itself produced an acceleration that was structurally impossible before.

For twenty years the deal was stuck on technical issues: access to India's auto market, European geographical indications, skilled worker mobility. Real issues, complex ones. Neither side had enough incentive to budge.

Then the structure of incentives changed. Not the negotiators, not the technical issues. The structure. And when structure changes, behaviour changes with a speed that surprises only those who watch intentions instead of mechanisms.

Schelling mapped this decades ago: threats only work when calibrated. An excessive threat doesn't produce compliance; it produces exit. Those threatened beyond a certain threshold don't try to satisfy demands. They seek alternatives. And they seek them with an urgency they didn't have before.

Look at the sequence over the past twelve months. Trump threatens 50% tariffs on India over Russian oil. India accelerates with Europe. Trump threatens Europe over Greenland. Europe accelerates with India. Carney visits Beijing, first Canadian PM since 2017. Starmer announces a China trip, first British PM since 2018. India, while signing with Europe, declares it's at an "advanced stage" with the US too.

Not contradiction. Systemic rationality. Every actor is diversifying, reducing exposure to any single bilateral relationship. Exactly what a portfolio manager would do facing an asset that becomes unpredictable: not eliminate it, reduce concentration.

Trump uses tariffs as a tool of geopolitical pressure, not economic. American courts have already noticed: in May 2025 the Court of International Trade declared the IEEPA tariffs illegal because there was no "rational connection" between the declared emergency and the measures imposed. When you use economic tools for non-economic objectives, counterparts understand. And they respond on strategic terms, not economic ones.

The EU-India deal isn't primarily commercial. It's a positioning agreement. Von der Leyen called it "the mother of all deals" not for its size, but for the signal it sends.

Here's what commentators are missing. Trump isn't "unpredictable". He's applying a coherent logic: maximise leverage in every single bilateral interaction, extract the maximum from every counterpart, keep all relationships in permanent instability. South Korea found out yesterday: they had a deal from July with 15% tariffs. Monday Trump announced they're going up to 25% because the Korean parliament didn't ratify.

This logic, perfectly rational from the perspective of any single negotiation, produces systemic effects that contradict it. If every deal can be revised tomorrow, no deal has value. If no deal has value, counterparts stop investing in the bilateral relationship and build alternatives. Not out of hostility. Out of basic prudence.

India is the perfect case. Delhi isn't "choosing" between America and Europe. It's building relationships with both, plus China, plus the Gulf, plus Africa. Explicitly multi-vector strategy: no excessive dependence on any partner. The rational response to an environment where any partner can become unpredictable.

For Britain, the implications are concrete. Having left the EU, the UK now watches from outside as a two-billion-person bloc takes shape. Starmer's upcoming China visit signals the same diversification logic. But the question remains whether bilateral deals can match the leverage of bloc-to-bloc agreements.

For Europe, the strategic value matters more than the commercial one. The EU is positioning itself as a reliable partner in a world where reliability has become scarce. For a company deciding where to build supply chains for the next twenty years, regulatory predictability is worth as much as production costs. Perhaps more.

The final paradox: Trump wants a world where America sits at the centre of every bilateral relationship, where every country negotiates separately with Washington, where no coalition can balance American power. But the pressure he applies is accelerating the formation of exactly those coalitions he meant to prevent.

Not a moral judgement. A mechanical observation. Systems respond to incentives, not intentions. The EU-India deal is the most visible manifestation of this dynamic, but it's part of a broader pattern crystallising right now.

There's a historical irony. The postwar multilateral trade order was an American project. The US built it because they understood that a rules-based system served their interests better than raw power. Now they're dismantling that system, convinced that raw power serves better. They may be right. But the test isn't in intentions; it's in results. And the results so far suggest they're accelerating exactly what they wanted to prevent.

Meanwhile Powell holds his press conference today on the Fed's decision to keep rates unchanged. He's under criminal investigation by the DOJ for alleged perjury, an investigation he publicly called a "pretext" to pressure the central bank. Trump is about to name his successor. The Supreme Court must decide if he can fire Governor Cook.

Two apparently separate stories: international trade and central bank independence. But the underlying mechanism is the same. Pressure on institutions designed to operate with autonomy. Systemic responses seeking to preserve that autonomy or build alternatives.

I don't know how it ends. But I know how to recognise a pattern when I see one operating. And this pattern, pressure producing the opposite of what it seeks, I've seen enough times to know it rarely ends the way those applying the pressure expect.