'US Supreme Court could declare Trump tariffs as invalid and US could have to refund tariffs worth $165-170bn': Jahangir Aziz

Jahangir Aziz, head of emerging market economics at JP Morgan

• US Supreme Court may invalidate Trump-era tariffs under IEEPA.
• US could still impose tariffs on India using Section 301 and Section 232.
• India urged to reconsider protectionist trade policies amid tariff risks.

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US Supreme Court could declare Trump Tariffs as invalid, but a reprieve for India could be short-lived, as America will impose tariffs on India under Section 301 and Section 232. India needs to rethink its protectionist trade policies.

While the US Supreme Court is yet to decide on the legality of US President Donald Trump’s global tariffs, Jahangir Aziz, head of emerging markets at JPMorgan, explains that the International Emergency Economic Powers Act was ruled as illegal by the original court of the International Trade Judgement.

President Trump had imposed tariffs under IEEPA, which was created to permit a complete trade embargo in case of an unprecedented event, for instance, if US citizens were taken hostage.

“The problem with what this White House has done is that you can't cite a trade deficit of 3.5-4% as an emergency because it's been happening for the last 20 years,” Aziz explains.

“ So, the chances are that even if we don't have a ruling, IEEPA will most likely, and that's what most legal experts say, that IEEPA most likely will be invalid in this case. Now, what happens after that? So, if IEEPA is made invalid because none of the trade deals have been passed by Congress, they are not trade agreements. If they're not trade agreements, then the basis on which you have made the trade deals falls through. Therefore, the trade deals will have to be redone.

They are just trade deals signed between two governments that have not been validated by either country's legislature or parliament, and that is not a trade agreement. So, the first thing that happens is that all the trade deals necessarily become invalid,” Aziz tells Moneycontrol.

Secondly, the US administration will have to reimburse all the tariffs that have been collected. An approximate $165-170 bn of tariffs have been collected under IEEPA. Then there are tariffs collected under Section 232.

“The Department of Justice has actually informed the Court of International Trade, saying that in the event that the Supreme Court does make IEEPA illegal, we will abide by your judgment that the tariffs will have to be reimbursed.”

In such a scenario, United States government will go back to the several other trade acts that allow the President to go and impose tariffs.

“Section 122 allows the president to impose a 15% tariff for 150 days. But there are problems with it. The problem is you can't give exemptions to categories.

You can either give exemptions for the entire broad category, so you cannot do what they have done on autos. There's a 25% tariff on auto, but there are countries that are exempt from it. Japan has a low tariff. Korea has a low tariff. Canada and Mexico, because of the free trade agreement, doesn't have any auto tariffs. The other problem with Section 122 is that it says, because you have a free trade agreement, that cannot be an exception. You cannot say that I have a problem with my balance of payments. There are these countries who are running these massive trade surpluses with the US, which is why we have a balance of payments problem, which is why we are imposing a 15% tariff for 150 days. But we are exempting the two largest countries that run trade surplus with the US, which happens to be Canada and Mexico.

That's where the problem is. If Canada and Mexico now become part of the 15% tariff, then there is a serious hit to US supply chain and US inflation. The reason why US inflation has been benign is because Mexico and Canada, the entire supply chain has been exempt from the reciprocal tariffs.,” explains Aziz.

United States could most likely use Section 301 and Section 232 which can be used to impose tariffs sectorally and on specific countries.

“ The normal way of doing this tariff is to use what is called Section 301 and Section 232. 232 you've already seen, which is these sectoral tariffs. Section 301 tariffs can be imposed on specific countries. It was imposed on China. The issue with Section 301 is that the tariffs have to be calibrated for every item”.

Catch the full interview here:

https://www.youtube.com/watch?v=fQ1TRIyEUVQ