Trump’s tariffs got quashed by America's Supreme Court—but India’s position has strengthened

The legal underpinning of his most sweeping actions was the International Emergency Economic Powers Act (IEEPA), a 1977 law that no previous president has used in such a fashion. Last Friday, the US Supreme Court ruled by a 6-3 majority that Trump had exceeded his authority in wielding IEEPA as a trade bludgeon.

On the face of it, the court’s decision is simply a plain reading of the text of the law. That it arrives as something of a political earthquake speaks volumes about the speed with which the US Congress has been surrendering its legislative authority to the executive and the extent to which a conservative court majority has been deferential to that expansion of executive power.

As the small businesses that challenged the tariffs point out, the word ‘tariff’ does not appear at all in the IEEPA’s text and the power to tax imports is constitutionally vested in Congress. The court’s three liberal judges, supported by a trio of conservatives—Barrett, Gorsuch and Roberts—agreed with this logic. The majority opinion penned by Chief Justice John Roberts categorically rejects the president’s power “to unilaterally impose unbounded tariffs and change them at will.”

Unfortunately, this is only a port of call on the Trump administration’s tariff odyssey; it is by no means the final destination. There are many other instruments to which the president can resort. Section 232 of the Trade Expansion Act of 1962 can be used to levy tariffs on national security grounds, as done previously for steel and automobiles.

Section 301 of that Act has been used to impose product-specific tariffs on China by both the Joe Biden and Trump administrations. And Section 122 of the Trade Act of 1974 allows temporary tariffs to address trade imbalances. The White House has already announced a global 15% tariff under this provision following the court decision.

But these alternative instruments are less sweeping, more time-consuming and involve multiple procedural steps. Section 301 and 232 require, first, investigations by the US Trade Representative and Department of Commerce, respectively. And Section 122 tariffs are limited to 150 days, absent a congressional extension.

Besides, the Trump administration is already stretching thin the interpretation of these acts; if steel and automobile imports qualify as ‘national security’ threats, it is hard to imagine any product that doesn’t. Further litigation will follow the inevitable attempt to expand tariffs under these provisions.

For India, the US Supreme Court decision could hardly have arrived at a trickier but more opportune time. A mere two weeks ago, the US and India issued a joint statement outlining a framework for a bilateral trade deal. Negotiations to translate this framework into a signed agreement were to have started on Monday in Washington, but have now been deferred. What now?

Note that the 50% tariff levied on Indian imports prior to the framework agreement comprised two parts—a 25% punitive tariff arising from India’s purchases of Russian oil and a 25% ‘reciprocal tariff.’

The removal of the former and reduction of the latter to 18% were the major concessions made by the US to India. But both the punitive and reciprocal tariffs now stand void. So the tariff reduction is no longer a concession, but rather a fait accompli. Adding the old most-favoured nation rates of about 3-4% to the new global tariff of 15% would put the tariff rate for India at about 18%, but this is a mere coincidence.

Of course, the US team will argue that the Supreme Court decision is only a hiccup, that alternative tariff instruments can be found and deployed at will and that therefore detailed negotiations should continue as if nothing has changed. This is true to an extent. But imposing new tariffs on legally justifiable grounds will be more burdensome than the flexible use of IEEPA. Moreover, the US will be keen to demonstrate that it can close trade deals despite the court ruling. Simply put, New Delhi’s bargaining position has improved dramatically overnight.

We should use this leverage carefully. There is little to be gained from publicly baiting a mercurial president smarting from the biggest legal reversal of his hitherto insouciant second term.

Instead, we should push quietly, at the margin, for more advantageous terms. This could include not just lower tariffs on important product lines like apparel, footwear and pharmaceuticals, but also greater market access in areas like services. For example, we could seek to shorten the ‘clear pathway’ towards digital trade rules envisaged by the joint statement.

We should insist that the bilateral agreement refrain from curbing engagement with third countries like Russia and China, adhering instead to the multilateral spirit of the World Trade Organization.

Finally, we should be wary of walking back the ‘concessions’ that we have made in areas such as rationalizing our Byzantine import licensing system and opening up to international standards. Some things are unambiguously beneficial with or without a trade deal.

The author is the director and chief executive of the Indian Council for Research on International Economic Relations (Icrier).