Supreme Court strikedown of Trump tariffs and what it could mean for India

Donald Trump

• US Supreme Court strikes down Trump's punitive tariffs on India
• India gains leverage to renegotiate key trade deal terms
• India can strengthen its stance on agriculture and data.

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The US Supreme Court struck down Donald Trump’s sweeping tariffs that he levied under a law to be used in national emergencies. The court ruled that the International Emergency Economic Powers Act or IEEPA, the law that Trump used to levy punitive tariffs on countries across the globe, does not grant Trump the power to impose tariffs.

The ruling is a significant blow to Trump’s aggressive trade policy on using tariffs as a means to correct trade imbalances with countries. India, which has been at the receiving end of Trump tariffs, gets a breather and more room for negotiations on what are considered the red lines for India.

THE POLITICS OF INDIA-US TRADE AGREEMENT

Negotiations between the two countries have been hot and cold for nearly a year, marked by several meetings between negotiating teams of both countries.

Trump’s unpredictability has often left the Indian side guessing and even stumped, no-one really saw the 50 per cent punitive tariffs coming on India. It’s been a negotiation that India has treaded with much caution – the challenge of balancing domestic interests while keeping the very mercurial President Trump somewhat pacified. For India, the strategy has been to protect domestic interests to the extent possible, even if it meant to let Trump have the last word. “We have to be clear about our priorities. the two leaders (Modi and Trump) making an announcement together would have been good… but if Trump wants to make the announcement…it’s fine…we have to work for our people,” a senior official who has been a part of the negotiations told Moneycontrol.

The framework for the interim trade agreement reduced tariffs for India’s labour-intensive sectors such as textile and leather - which had been a pain-point for India. The trade -off, according to the United States was that India had agreed to not purchase Russian oil, a point that India has not conceded to.  Officials in conversations have continued to iterate that India maintains its sovereignty to decide who it purchases oil from.

Currently, there is what can be referred to as a’ gentlemen’s agreement’ between the two countries.  Commerce Minister, Piyush Goyal had said that an interim trade agreement between India and the US is likely to be signed in March and operationalised in April. US Ambassador, Sergio Gor, at India AI Impact summit on February 20th said that the interim trade pact is in its final stages with both sides working through technical points.

On February 7th, Trump signed an executive order lifting 25% tariff penalty on India, a joint statement released on February 6th noted that USA and India have reached a framework for an interim agreement regarding reciprocal and mutually beneficial trade (interim agreement).

The note stated that India will eliminate or reduce tariffs on all US industrial goods and a wide range of US food and agricultural products including dried distillers’ grains, red sorghum, tree nuts, fresh and processed fruit, soybean oil, wine and spirits and additional products. And the US will apply a reciprocal tariff rate of 18%. But all of that could change now, if India decides to bring the US back on the negotiating table.

The SC ruling striking down the punitive tariffs on India puts India back on the negotiating table, this time with perhaps a slightly milder Trump. Veteran negotiator and trade economist, Biswajit Dhar,  who has been of the view that India perhaps should have waited more before getting in to an agreement and perhaps has given away too much, says that this ruling “puts India on a better wicket. Before we sign the dotted line, we should try and swing some of the ambiguities in our favour.”

Some of the areas where India could swing a better deal are agriculture, data and oil sovereignty.

In agriculture for instance, the text of the statement released by the White House stated that India will eliminate or reduce tariffs on a wide range of US food and agricultural products, leading to a lot of anxiety amongst the farmers on the ambiguity of what had been allowed. This gives India an opportunity to emphatically reinforce its red lines- specifically on GM Corn- once again.

It also gives India an opportunity to push back on cross border data flows, the interim agreement had prioritised unrestricted, free cross border data flows. The ruling opens a window for India to reinforce its policy of data localisation and sovereignty over decisions like who India decides to buy oil from.  Even as India has maintained a steady silence on its stance on purchase of Russian oil, President Trump has repeatedly claimed that India has agreed to a complete halt of Russian oil purchases in exchange for significant tariff reductions.

The US Supreme Court by declaring Trump’s tariffs illegal has given India the much-needed push to renegotiate for a more equitable and balanced trade deal.