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P.C: Times of India

Context

On May 28, 2025, a US court found that the tariffs, which ranged from 10% to 135% and applied to over 100 countries, violated the Constitution and were therefore illegal.

India–US Tariff Disputes: Key Concerns

The United States has imposed a 26% tariff on Indian goods, reflecting growing trade tensions.

High and Unpredictable Tariffs

• India’s WTO-bound agricultural tariff rates average 113.1%, with peaks up to 300%.
  
  
• Frequent tariff hikes—especially in solar products, telecom equipment, and consumer electronics—create market uncertainty.

Regulatory and Policy Barriers

• Lack of transparency in tariff announcements and regulatory policies.
  
  
• No uniform government procurement policy, leading to inconsistencies in implementation.
  
  
• Weak enforcement of Intellectual Property Rights (IPR) raises concerns among US stakeholders.
  
  

Foreign Investment & Market Access

• FDI restrictions in retail deter foreign companies.
  
  
• State-owned banks dominate, holding 60% market share, limiting private competition.
  
  
• In insurance, government-backed public firms enjoy unfair advantage over private players.
  
  

Agriculture & Subsidies

• Subsidies like credit waivers, crop insurance, and input support create market distortions and unfair advantages.
  
  

Digital and Trade Barriers

• Frequent internet shutdowns hinder commercial and digital trade.
  
  
• Opaque regulatory changes are often made without WTO notification, breaching global trade norms.

Legal challenge to Trump’s tariffs

• Unlawful Executive Overreach: Five small firms in the United States challenged Trump's tariffs before the Court of International Trade (CIT), claiming that the President exceeded his legal authority by imposing tariffs without Congressional consent. For example, companies that sell wine, bicycles, and fishing equipment alleged economic hardship.
• The case claimed that the president's sweeping tariffs evaded parliamentary and judicial checks, damaging the constitutional system. For example, the court stated that trade laws must be negotiated by Congress rather than by unilateral executive orders.
• Misuse of National Emergency Powers: The court determined that invoking a "national emergency" does not warrant rewriting international trade accords. For example, the CIT declared that such authorities cannot be used to override WTO trade commitments.

Judicial Ruling on Presidential Tariff Powers: Key Points

• Lack of Legal Basis: The court ruled there was no statutory authority for the President to impose global tariffs under a vague “national emergency”. For example, tariffs up to 135% were levied without Congressional approval.
  
  
• Overreach of Executive Powers: The judgment emphasized that invoking emergency powers cannot allow the President to override trade laws or international commitments, warning that it threatens the constitutional separation of powers.
  
  
• Absence of Real Emergency: The court found no credible or immediate threat to justify such emergency trade actions. The trade deficit, cited as justification, was deemed a long-standing issue, not a sudden crisis.
  
  
• Distortion of Trade Deficit Data: The administration ignored services and arms trade while presenting trade deficit data. For instance, while the U.S. claimed a $44.4 billion deficit with India, it actually had a $35–40 billion surplus when services were included.
  
  
• Violation of International Obligations: The ruling noted that the tariffs breached WTO commitments, undermining global trade norms. In one example, tariffs were even applied to uninhabited regions like the Heard and McDonald Islands, indicating arbitrariness.

Key Issues in India-U.S. Trade Deal

• Removal of Additional Tariffs: India must push for the removal of punitive U.S. tariffs, especially the 50% tariffs on steel and aluminium exports.
  
  
• Impact: These tariffs hurt India’s manufacturing sector and export competitiveness.
  
  
• Digital Services Tax Clarity: India should seek assurances against U.S. retaliation for imposing digital services taxes.
  
  
• Impact: U.S. tech companies operating in India could face uncertainty without a mutually acceptable taxation framework.
  
  
• Protection from Remittance Tax: India needs exemption from the proposed 3.5% tax on remittances under the Trump-era OBBB policy.
  
  
• Impact: This affects the Indian diaspora and inward remittances, a major source of foreign exchange.
  
  
• H-1B Visa Concerns: India must negotiate to protect access to H-1B visas, crucial for its IT and services industry.
  
  
• Impact: Restrictive visa policies hurt Indian tech professionals and firms in the U.S.
  
  
• Cross-Border Services and Data Flows: Ensure unhindered digital trade, with clear rules on data flow and digital services.
  
  
• Impact: Vital for BPOs and fintech sectors.
  
  

Way Forward

• Pursue Balanced Trade Negotiations: Focus on reciprocity, strategic sector protection, and economic resilience.
  
  
• Strengthen WTO Engagement: India must advocate fair trade practices and build coalitions within WTO.

Practice Questions Q. What introduces friction into the ties between India and the United States is that Washington is still unable to find for India a position in its global strategy that would satisfy India’s National self-esteem and ambitions. Explain with suitable examples.