Why a curb on Trump’s tariff powers by US top court could deliver $500 mn refund, & possibly a fairer trade deal for India

An adverse court order could mean a reset in trade dynamics, and an opportunity for India to negotiate a more balanced trade deal. Indian officials have said that the US is seeking market access for its products in exchange for a reduction in reciprocal tariffs, including on sensitive items such as genetically modified soya and corn. The US has set reciprocal tariffs from 15 to 20 per cent for its closest allies and others in the ASEAN region.

If the administration were to lose the case, however, the reciprocal tariffs would be declared invalid, and the Trump administration would have to initiate refunds to the tune of $100 billion to US importers. According to an estimate by PwC, total tariff collections by the end of October stood at $108 billion, with China having the biggest share at $34 billion. In the case of India, the comparable figure stood at $487 million, according to PwC estimates.

Express graphic: Abhishek Mitra

“If the Supreme Court strikes down the Trump administration’s IEEPA tariff scheme entirely, the decision could declare the challenged tariffs invalid, requiring US Customs and Border Protection (CBP) to cease collection and unwind the existing tariff structure. At the same time, importers could face the complex question of how to obtain refunds, as invalidation of the IEEPA tariffs may open the door to potential reimbursement of tariffs paid,” PwC said in a report.

The invalidation of IEEPA, as expected, would also reduce volatility in trade relations, as the US—without these IEEPA-based tariffs—could see this and future administrations return to other statutory tools such as Section 232 and Section 301, which have more defined limits.

Lower courts ruled against Trump

Court documents show that parties arguing against the tariffs include over a dozen small businesses. The number of parties arguing against the tariffs far outnumbers the parties defending the same.

Three lower courts have already ruled against the Trump administration. The case was first heard in the US District Court for the Northern District of Illinois, which in April rejected the government’s argument. The US Court of International Trade (CIT) in June also held that IEEPA does not authorise the president to levy general tariffs. The US Court of Appeals for the Federal Circuit in August ruled that Congress had never delegated such sweeping authority to the executive branch.

“If the Supreme Court strikes down Trump’s use of emergency powers, forcing the withdrawal of his ‘Liberation Day’ tariffs, the ruling would reverberate far beyond US borders. The decision would unravel the foundation of several recently negotiated trade arrangements with key partners such as the EU, Japan, South Korea and the UK—all of which were struck under the shadow of those tariffs and premised on reciprocal concessions. It would also disrupt ongoing talks with India, where tariff leverage has shaped Washington’s negotiating position,” Delhi-based think tank GTRI said in a report.

Trump’s Plan B

With the legal powers under IEEPA in question, the Trump administration has dramatically increased the use of Section 232 tariffs. Tariffs under Section 232 have raised levies on aluminium, cars and car parts, copper, furniture, lumber, steel and timber, and fresh investigations have already been launched into ten other types of products.

Key investigations include the Trump administration’s review of imports of robotics and industrial machinery. The United States is a net importer of these goods, importing $25 billion more than it exported last year, and the US has no major company mass-producing industrial robots and few domestic component suppliers, the Council on Foreign Relations said.

While tariffs under Section 232 would be far less sweeping than reciprocal tariffs that Trump managed under IEEPA, the former provides much stronger legal cover, as the US Supreme Court has on multiple occasions refused to entertain challenges due to the “national security” element in the statute.

However, Indian officials have said that Section 232 tariffs have not been a priority during negotiations, as the US tariffs under the statute are imposed equally on all countries and do not hurt competitiveness.