Trump Tariffs on Trial

The controversial set of reciprocal and fentanyl-trafficking linked tariffs imposed by President Trump by invoking the International Economic Emergency Powers Act (IEEPA) have now reached the U.S. Supreme Court, after judgements by lower and appellate courts had ruled that the IEEPA did not authorise the President to impose such tariffs. The case will now be heard by the highest court in early November. 

In this brief, the author examines the various aspects of the case and draws attention to the high stakes involved. Substantial revenues in the form of tariffs have already been collected by the Trump administration, which may have to be refunded if the tariffs are eventually deemed illegal. Pledges of hundreds of billions of dollars in foreign procurements from the U.S. and promises of huge investments to be made into the US have also been extracted from several trading partners, using reciprocal tariffs as a threat. These would also be at risk. 

The imposition of these tariffs has been challenged by certain small U.S. businesses who fear significant losses. Also contesting the tariffs are twelve  states ruled by the Democratic Party, which have contended that tariffs are taxes and under the Constitution, the power to tax lies squarely with the U.S. Congress. 

While the author does not speculate on what could be the eventual decision of the U.S. Supreme Court, he dwells on possible ramifications from the Court’s ruling, whichever way it finally goes. If the Court rules in favour of the President, it could mean conferring unchecked authority on him to impose tariffs, bypassing Congress. It could also be a strong blow to the global trading system, whose rules already stand violated by these tariffs. 

A judgement by the Supreme Court that upholds the ruling of lower courts could, however, still see the Trump administration trying to work around it through other means, including resort to laws that permit the U.S. President to impose tariffs, but with much narrower scope. Alternatively, the chances of this administration turning to WTO reform and other multilateral avenues for pursuing its trade agenda are remote. 

Finally, the author also addresses the question whether India should await the U.S. Supreme Court verdict before concluding a bilateral trade agreement with the U.S. which is under negotiation. He argues that it is advisable to try and conclude the BTA as soon as possible, while protecting our red lines. However, he also suggests that suitable safeguards on implementation of the BTA need to be discussed with the US administration, to provide for the possibility of the Supreme Court upholding the rulings by lower courts.

To read this DPG Policy Brief Vol. X, Issue 24, please click “Trump Tariffs on Trial”.