US Tariffs & Global Trade Dynamics

US Tariffs & Global Trade Dynamics

Context

The global trade landscape underwent a massive shift following a landmark judicial decision in the United States. The U.S. Supreme Court struck down President Donald Trump's use of emergency powers to levy tariffs, prompting an immediate pivot to alternative trade statutes that have redefined America’s economic relations with the world.

Recent Developments: The Tariff Tug-of-War

The Supreme Court Ruling (Feb 20, 2026): The Court ruled 6-3 that the International Emergency Economic Powers Act (IEEPA) does not grant the President the authority to impose tariffs.

• Outcome: All "Reciprocal Tariffs" and immigration-linked duties imposed under IEEPA were declared illegal.
• Implication: The federal government may be required to refund over $160 billion in collected duties, though the process remains legally contested.

The Pivot to Section 122: Within hours of the court's rebuke, President Trump invoked Section 122 of the Trade Act of 1974 to announce a new 10% global import surcharge.

• Legal Basis: Section 122 allows temporary (150-day) surcharges of up to 15% to address "fundamental international payments problems" (trade deficits).
• Status of India: Despite the global surcharge, the 18% tariff trade deal signed earlier in February 2026 remains the baseline for Indian goods, ensuring some continuity amidst the chaos.
   

Impact on India

The shifting US trade policy presents a "mixed bag" for the Indian economy:

• Export Pressure: Even with a bilateral deal, a 10%–18% tariff makes Indian goods more expensive than domestic US alternatives, potentially lowering demand for:
  • Textiles and Garments
  • Generic Medicines (Pharmaceuticals)
  • Agricultural Products (Rice, spices)
  • Pearls and Jewelry
• Competitive Advantage: Since the global surcharge hits all nations, India’s 18% fixed rate may actually be more favorable than the rates faced by competitors like China, who are subject to additional Section 301 investigations.

Global Context: The WTO Crisis

The global trade "safety net" is currently paralyzed. The World Trade Organization (WTO) Appellate Body, essentially the supreme court of international trade, is non-functional.

• The Blockade: The US continues to block the appointment of new members (94 times as of late 2025/early 2026), citing concerns over judicial overreach.
• Consequence: Trade disputes are "appealed into a void." Without a functional arbiter, nations are increasingly turning to protectionism and isolationism, ignoring multilateral rules in favor of bilateral "deals."
   

Way Forward for India

To mitigate the risks of "America First" policies and a paralyzed WTO, India is pursuing a strategy of Trade Diversification:

1. Expanding Horizons: Finalizing Comprehensive Economic Partnership Agreements (CEPAs) with the UK, European Union, and UAE.
2. Focusing on Africa: Tapping into the African Continental Free Trade Area (AfCFTA) to export engineering goods and digital services.
3. Strengthening "China Plus One": Positioning India as a reliable manufacturing hub for companies exiting the Chinese market due to even higher US-China trade barriers.

Conclusion

The US Supreme Court's intervention marks a critical juncture where constitutional law met global trade. While the ruling temporarily checked executive power, the immediate shift to Section 122 signals that protectionism remains the dominant global trend. For India, the path to resilience lies in balancing its "fantastic relationship" with the US while aggressively building new trade corridors elsewhere.