The US Supreme Court ruling — that the president had exceeded the authority vested under the International Emergency Economic Powers Act — has demolished the foundation of Donald Trump’s tariff policy regime applied across countries since April last year. Trump has now been challenged from within the United States of America instead of abroad, and has retaliated with a 15% global tariff extending to all goods but critical minerals, some metals, and pharmaceuticals. Enforceable from yesterday, the new tariffs are legally permissible for up to 150 days. However, Trump has threatened trade investigations under yet another legal provision as well as more severe tariffs ahead. The immediate, reactionary response is unsurprising. It portends a prolonged period of destructive uncertainty with interim chaos. Nonetheless, without any legal anchoring of the bilateral deals struck under the past punitive tariff policy regime, this opens up possibilities to renegotiate the mutual commitments. What are the options for India?
It is well known that India’s restrictive import regime and continuous purchases of Russian crude oil elicited exceptional tariff ire from Trump. This had resulted in a 50% tariff rate on India's exports, with 25% punitive levies last August for the purchase of Russian oil. It was only a fortnight ago, on February 6, that the two countries reached a framework for an interim agreement on reciprocal and mutually beneficial trade. The core elements of this, especially tariff levels, reciprocity, dilution of strategic autonomy and enforcement mechanisms, have caused enormous disquiet since. Even more so because the framework has raised more questions than answers with little clarity on many aspects that remain ambiguous.
The obvious question in this short context is whether the US Supreme Court ruling widens the space for India to rework some elements — perhaps the most fractious ones or those coerced into under the tariff duress — and modify these? Does it give India better leverage and bargaining strength?
There are several pointers in this regard. An important one is the deferment of the trade deal talks for which the Indian side was scheduled to visit the US this week: both sides are examining legalities to evaluate the implications. The significance lies in the emphasis upon legally-anchored trade agreements instead of relying on ad-hoc executive measures that could be unenforceable in the future. Seeking a sound legal foundation makes the direction of trade policy certain and predictable and, therefore, can be viewed as improving India’s bargaining abilities. This, however, can only be speculated upon as most of these talks have been informal and through backchannels.
A second pointer is the provision in the interim agreement stating that should there be any changes to the agreed-upon tariffs of either country, the other country may modify its commitments. Many trade analysts have pointed to this, arguing the new tariff rate — 15% plus the most-favoured-nation rate of 3.3% — is standard across countries and gives no relative advantage to Indian exporters over their competitors. Indeed, it is a windfall for countries that faced higher levies (for example, China) and a disadvantage for those who struck deals at lower tariffs like the European Union. The latter has already demanded the US to stick to the agreed deal. This, too, is a pointer that all past deals may be up for re-examination.
The perceived leverage and negotiating strengths may not be expansive. For these are bounded by Trump’s own proclivities — an enduring belief in import duties to regenerate America and its manufacturing as well as his determination to pursue similar objectives through other routes. This is evident from his quick direction to launch probes under Section 301: this deals with unfair trade retaliation and was the basis for most of Trump’s tariffs upon China before the shift to universalised import restrictions under the IEEPA. More importantly, it aligns with his preference for selective sector- and country-specific trade actions to secure bilateral deals. In the past, it has survived legal challenges when well-justified. However, the process is long due to mandated formal investigations, hearings, and inputs from affected firms. There are more statutory tools: retaliatory tariffs for foreign burdens — disadvantaging US commerce.
There should be little doubt that Trump will not hesitate to shift to other levers. Or that he hasn’t lost much leverage. Given India’s singular marking out for his penal levies, the changed circumstances underline the delicate nature of reworking the framework for an interim agreement that was shared publicly two weeks ago. This may not be straightforward or easy. As indeed Mr Trump confirmed soon after the Supreme Court ruling, there would be no changes to the announced US-India trade deal.
What extra concessions could then be secured in this context and the new situation? One concession that could be sought is a lower tariff than that of India’s competitors for exporting advantages in the new configuration. This may not eliminate the asymmetric reciprocity of the February 6 framework — zero tariff on many US exports to India against an 18% reciprocal tariff rate on that by India — as it is difficult, at this point, to foresee the US reverting to its December 2024 effective tariff rate (~3% and threefold lower). A more critical question is if the mortifying shift in sourcing crude oil (away from Russia to other countries like Venezuela) and enforcement mechanisms can be diluted or mitigated. Speculation in this regard is extremely complicated because of its extremely provocative and geopolitical nature — it is difficult to perceive a concessional regain of India’s strategic autonomy with the invalidation of the tariff lever deployed by Trump to browbeat the country.
Still, the enormous domestic challenges confronted by the US president cannot easily be dismissed. Twelve states and numerous businesses hurt by his restrictive tariff regimes are eager to secure refunds, implying a variety of further litigation and apparently little support for these tariffing policies. Using other tariff tools may not be easy for the president since the processes could be long-drawn.
There is, therefore, complete policy uncertainty on the direction of trade policy. This is evident in the noticeable caution and muted reactions of all countries and markets — they have not been celebratory or confident about the end of tariff volatility — while trade experts have sounded caution about a legal grounding for predictability. The interregnum provided by the US Supreme Court ruling gives a chance to step back and reformulate some core features of the mutual commitments in the interim agreement. Until the legal direction of US trade policy becomes clear, uncertainty about these will persist.
Renu Kohli is Senior Fellow, Centre for Social and Economic Progress, New Delhi. Views are personal