Why in News?

• Following the judicial setback to his tariff policy, U.S. President Donald Trump announced a temporary blanket tariff surcharge of 15% (from 10% earlier) on global imports for 150 days, invoking powers under the Trade Act of 1974.
• The move came a day after the Supreme Court of the United States invalidated his sweeping reciprocal tariffs imposed under the International Emergency Economic Powers Act (IEEPA).
• The decision has significant implications for India–U.S. trade relations, global trade flows, and the ongoing negotiations for a bilateral trade agreement.

What’s in Today’s Article?

• Background
• Legal Basis and Exemptions
• Impact on India
• Global Trade Implications
• Challenges
• Way Forward
• Conclusion

Background:

• Supreme Court verdict:
  • The U.S. Supreme Court struck down the administration’s reciprocal tariff regime under IEEPA, ruling that the legal basis for broad tariff imposition was inadequate.
  • The verdict would have reduced the average U.S. tariff rate from 15.3% to 8.3%.
  • To circumvent the ruling, the U.S. administration invoked Section 122 of the Trade Act, 1974, which allows temporary import surcharges to address international payments imbalances.
• New tariff regime:
  • 15% ad valorem surcharge on imports, to be effective from February 24, and valid for 150 days.
  • It applies uniformly to all countries, including India.

Legal Basis and Exemptions:

• Section 122 of the Trade Act, 1974:
  • It empowers the U.S. President to impose temporary import surcharges, restrict imports, and address balance-of-payments problems.
  • The proclamation justified the tariffs as necessary to correct global trade imbalances.
• Goods exempted from tariffs:
  • Certain sectors were excluded due to domestic economic needs, For example,
    • Strategic, industrial, and technology goods
    • Critical minerals and metals
    • Energy and energy products
    • Natural resources and fertilizers
    • Aerospace products
    • Certain electronics
    • Pharmaceuticals and ingredients
    • Vehicles and vehicle components
    • Agricultural products
    • Beef, Tomatoes, Oranges
  • These exemptions reflect U.S. supply-chain dependencies and industrial priorities.

Impact on India:

• Tariff changes:
  • The new tariff rate (15%) is lower as compared to the previous rate (18%).
  • Earlier effective tariff under IEEPA (~22.3%).
  • Potential tariff after court verdict (without surcharge) - ~8.2%.
  • Thus, India benefits compared to earlier tariffs, but loses potential gains from the court ruling.
• Government response: India’s Commerce Ministry stated that it is studying implications, assessing impact on exports and trade negotiations.
• Implications for India–U.S. trade deal:
  • Changing negotiation dynamics: India and the U.S. are negotiating an interim trade agreement. The Supreme Court ruling has altered tariff expectations. The U.S. administration has signalled -
    • India will continue to pay tariffs
    • The U.S. expects market access concessions
  • Strategic significance: The tariff policy may influence market access negotiations, rules of origin, supply-chain diversification, and strategic economic alignment.

Global Trade Implications:

• Major exporters such as China, India, Brazil, Indonesia, and Vietnam would have seen double-digit reductions in tariff burden.
• Smaller economies like Myanmar, Laos, Serbia, and Tunisia would have experienced over 20 percentage point reductions.
• The surcharge therefore preserves higher U.S. tariff protection levels.

Challenges:

• Trade uncertainty: Frequent policy changes increase unpredictability for exporters. Temporary tariffs complicate long-term contracts.
• Protectionism: Expansion of tariff tools indicates rising economic nationalism. Risks fragmentation of global trade.
• Impact on Indian exporters: Affected sectors may include engineering goods, textiles, chemicals, and auto components.
• Legal and institutional concerns: Tension between executive power and judicial oversight in U.S. trade policy.
• Negotiation pressure: Tariffs may be used as leverage in India–U.S. trade negotiations. 

Way Forward:

• For India: Accelerate conclusion of India–U.S. trade agreement. Diversify export markets (EU, ASEAN, Africa). Strengthen domestic manufacturing competitiveness. Use WTO-compatible trade diplomacy.
• For global trade: Strengthen rules-based trade order. Reduce unilateral tariff actions. Enhance multilateral cooperation through WTO reform.

Conclusion:

• The U.S. administration’s decision to impose a temporary 15% global tariff surcharge after the Supreme Court verdict reflects the growing use of domestic legal tools to pursue protectionist trade policies.
• While India faces a lower tariff rate than before, it loses the opportunity for significantly reduced duties.
• The development underscores the increasing role of geopolitics and economic nationalism in shaping global trade, making strategic trade diplomacy essential for India’s economic interests.