Editorial 2: Trump’s tariffs and a U.S.-India trade agreement

Context

India should avoid getting into any less-than-ideal deal with the United States.

Introduction

Ultimately, it wasn’t a major clash between nations, but a lawsuit filed by five small U.S. businesses that posed the most significant challenge yet to President Donald Trump’s broad tariff policies.

Key Concepts and Events

• Tariffs are not arbitrary; they are the outcome of rigorous trade negotiations and are codified in laws and regulations.
• They are legally bound through schedules in trade agreements, offering certainty and predictability to cross-border businesses.
• President Trump’s sweeping tariffs (ranging from 10% to 135%, targeting over 100 countries) were a stark violation of trade norms.
• The tariffs even covered remote areas like the Heard and McDonald Islands (uninhabited Arctic marine reserves), highlighting the absurdity of the order.
• This executive action undermined the separation of powers — legislature, executive, and judiciary — a core element of democratic constitutions.
• It raised concerns about the absence of checks and balances even in the U.S., often seen as a model democracy.
• In response, five small and mid-sized U.S. businesses challenged the order at the U.S. Court of International Trade (U.S. CIT), citing economic harm.

Details of the Case

Trump Administration’s Rationale for Tariffs

• Claimed a “national emergency” due to the U.S. trade deficit with multiple countries.
• A trade deficit occurs when imports exceed exports.
• However, a trade deficit does not inherently harm a country’s economy:
  • It may reflect strong consumer purchasing power.
• The administration excluded service exports in its trade calculations.
  • Example: With India, the U.S. cited a $44.4 billion goods trade deficit.
  • However, services and arms trade paint a different picture.

Corrected Trade Balance with India

Source: Global Trade Research Initiative (GTRI)

Legal Judgment by U.S. Court of International Trade (CIT)

Court Ruling – May 28, 2025

• Tariffs exceeded legal authority granted to the President.
• Warned against misuse of “national emergency” provisions.
• Key Observations:
  • Mere invocation of emergency cannot override constitutional checks.
  • President cannot unilaterally revise international tariff agreements.

Impact of the Judgment

• Stayed the very next day by the U.S. Appeals Court.
• As a result:
  • Tariffs remain in force.
  • Negotiating pressure on trade partners continues.

Arguments & Future Concerns

Trump Administration’s Argument

• Claimed tariffs offer leverage in trade negotiations.
• The court rejected this, stating it does not justify illegality.

Future Legislative Push – OBBB

Status of India-U.S. Trade Talks

• Both governments are pushing for an early trade agreement, with pressure mounting due to the U.S. deadline of July 8.
• Despite negotiations, the U.S. has doubled existing tariffs on:
  • Steel: from 25% -> 50%
  • Aluminium: from 10%  - > 50%

WTO Dispute & India's Withdrawal

India’s Options at WTO

• Contemplated retaliation at WTO.
• Blocked by the U.S., resisting India's efforts to reinitiate or escalate action.

Geopolitical Angle: China & Strategic Uncertainty

• U.S. Targeting of China: Trump administration cites China’s economic rise as a core concern.
• Strategic Opportunity for India?
  • Initially perceived as a chance for India to benefit from U.S.-China tensions, but this is now diminished due to:

Implications for India

• The U.S. has taken a harsh transactional approach under Trump.
• This approach undermines India’s position in three ways:
  1. Trade leverage is eroded.
  2. No assurance of geopolitical backing (e.g., during potential standoffs with China).
  3. Investment risks increase, particularly in sectors like electronics (Apple case).

India's Priorities in a Trade Agreement with the United States

• Strategic Considerations: Any trade deal must carefully balance India’s core economic and strategic interests.
  • India must ensure that the agreement safeguards its long-term trade sovereignty.
• Key Demands in Negotiation
  • Complete removal of additional U.S. tariffs on Indian exports, particularly on steel and aluminium.
  • Clear assurances against retaliatory tariffs on U.S. companies investing or manufacturing in India, including those like Apple.
  • Exclusion of Indian remittances from the proposed 3.5% tax under the OBBB Act.
  • Protection against retaliatory action from the U.S. concerning India’s digital services tax regime.
• Mobility and Services Trade
  • Secure commitments on H-1B and other work visas, which are essential for Indian professionals, particularly in the tech sector.
  • Ensure the trade deal addresses the visa needs critical to the services sector, which forms a substantial part of India’s trade with the U.S.
• Cross-border Data and Service Regulation
  • Resolve outstanding issues related to the delivery of cross-border services, including:
    • Data flow governance
    • Digital trade regulations
    • Regulatory cooperation on digital infrastructure
• Alignment with Multilateral Obligations
  • Ensure that any bilateral trade agreement is fully consistent with India’s WTO commitments.
  • Despite the U.S.'s reduced reliance on multilateral frameworks, WTO rules remain the only dependable global safeguard.
  • India must continue to uphold and reinforce the multilateral trading system, as reaffirmed during its G20 presidency.

Conclusion

India must retain the flexibility to opt out of any trade agreement that does not adequately serve its national interest. While the tariffs imposed by the Trump administration are undoubtedly burdensome, they are expected to be short-lived, with the most significant opposition to them emerging from within the United States itself.