In recent months, global trade dynamics have shifted dramatically. Countries are moving away from traditional multilateral frameworks toward targeted bilateral and plurilateral trade deals. This pivot is driven by a desire to secure resilient supply chains amidst geopolitical uncertainty, tariff wars, and stagnation at institutions like the WTO.
India is aligning with this shift. On May 6, 2025, it signed a landmark FTA with the UK, aiming to double bilateral trade to $120 billion by 2030. Negotiations are also underway with the EU and the United States, for early harvest or interim agreements. Meanwhile, the U.S. reached a 90-day tariff truce with China in May and secured a $600 billion investment pledge from Saudi Arabia focused on defence and AI.
While these agreements promise economic benefits, they also contribute to a complex web of overlapping trade rules and standards, a phenomenon economists term the "spaghetti bowl" effect. This intricate network of deals can lead to increased compliance costs and regulatory challenges for businesses, potentially weakening the global trading system.
At the heart of this shift is friendshoring, a deliberate move away from lowest-cost production toward partnerships grounded in shared values at a political and economic level. Globally, friendshoring surged in the wake of geopolitical disruptions like the Covid-19 pandemic or the Russia-Ukraine war. Not to mention the stringent tariffs imposed by the first Trump Administration and carried on by the Biden Administration in the hope of a surge in reshoring: US companies returning manufacturing back home. Major firms have since shifted production. Apple moved AirPods and parts of iPad manufacturing from China to Vietnam and India. Similarly, Samsung now manufactures half its smartphones in Vietnam and a significant share in India.
Though friendshoring strengthens diplomatic ties and helps de-risk supply chains, it paradoxically disrupts the very global trade corridors that powered decades of growth. By consolidating supply chains among politically aligned partners, friendshoring has the potential for geopolitical fragmentation of the global economy. Excluding “unfriendly” nations risks isolating those that refuse to endorse the values of the powerful countries. While friendshoring may benefit “like-minded” countries, those gains come at a cost: higher regulatory and compliance expenses, reliance on costly subsidies and tax breaks, increased production and consumer prices, and deeper dependency on a narrow set of partners. While friendshoring may hedge geopolitical risks in the short term, the IMF warns it could cut global GDP by up to 2% and raise production costs.
Two successive G20 summits in Bali (2022) and New Delhi (2023) were dominated by geopolitical disputes, sidelining trade and development agendas. While leaders reiterated support for WTO reform, they offered no binding timelines or enforcement mechanisms. Meanwhile, the WTO’s “one member, one vote” ideal is routinely undermined by consensus-based decision-making, giving powerful nations de facto vetoes and limiting the voice of developing countries.
The WTO’s subsidy rules also favour richer countries. For example, “green box” subsidies allow developed economies to disburse over $150 billion annually, often undercutting farmers in the Global South.
Frustrated with these structural inequities, many countries are turning to bilateral and regional FTAs. These allow faster tailor-made agreements on market access, subsidies, digital trade, and dispute resolution, delivering outcomes that multilateralism often fails to provide.
This shift has sparked an FTA gold rush. While these agreements reduce tariffs and open up new markets, they also introduce complex layers of regulation that can offset the gains. For example, the India–UK FTA eliminates 10% to 12% import duties, providing a significant opportunity for India’s $170 billion textile sector to enhance its competitiveness in the UK.
However, the benefits are unevenly distributed. India’s 63 million MSMEs, which contribute nearly 30% to GDP and employ around 110 million people, are more cautious. Many fear being undercut by cheaper British imports and are concerned about increased regulatory compliance and competition in sensitive sectors such as medical devices and light manufacturing. Moreover, studies show that compliance-related expenses under overlapping FTAs can raise the cost of a single shipment by up to 6%, eroding the very advantages these deals are meant to deliver.
Coined by economist Jagdish Bhagwati in 1995, the “spaghetti bowl” metaphor describes the confusion and inefficiency caused by a proliferation of FTAs. These deals create multiple, sometimes conflicting, tariff schedules and rules of origin—each requiring its own documentation and compliance.
For instance, under the India–Japan CEPA, textile exporters often fail to qualify for tariff preferences because they use imported fabrics or accessories that disqualify them from “origin” rules. As a result, many Small and Medium Enterprises (SMEs) opt out of FTA benefits altogether. Government data shows FTA utilization among Indian exporters remains under 25% in several sectors.
Such fragmentation undermines the predictability and efficiency that multilateral frameworks like the WTO were designed to ensure, and risks marginalizing smaller players who lack the resources to navigate this complex regime.
In the near term, FTAs and friendshoring offer agility, market access, and geopolitical hedging. But the long-term risks are clear: a fragmented trading order, higher costs, and growing exclusivity. To restore predictability and inclusiveness in global trade, we need more than rhetorical support for reform of the multilateral trading architecture. Countries must push for systemic changes to the multilateral order secure the global trading architecture.
For a country like India, the real opportunity lies not just in signing more trade deals, but in using them as leverage to shape the future rules of global commerce. Rather than treating FTAs as substitutes to global trade, they can serve as means to modernize domestic capabilities, align with international standards, and influence multilateral rule-making. By collaborating with other emerging economies, India can help drive a more inclusive and representative global trade system that reflects the interests of the many, not just the powerful few.