Trump Tariffs Face Court Bar. Here's How India Can Profit

The judgment directed the Trump administration “to effectuate the permanent injunction” on the matter, marking a significant legal rebuke to his tariff policy. The ruling specifically targeted tariffs introduced on "Liberation Day" and those related to fentanyl imports from Canada, Mexico, and China.

However, the US Court of Appeals for the Federal Circuit temporarily stayed the injunction, allowing the tariffs to remain in effect, pending further review.

Trump's Hand & The Court's Counter

Trump had invoked the International Emergency Economic Powers Act (IEEPA) of 1977 and Section 232 of the Trade Expansion Act of 1962, both of which allow a POTUS to restrict imports deemed a threat to US national security.

However, IEEPA merely gives the President the authority to “regulate” imports, without explicitly mentioning tariffs. Trump’s team argued that this authority implicitly covered tariff imposition. The court disagreed.

One legal way to regulate imports is through quotas — an argument the Trump administration leaned on, especially when targeting Chinese and Mexican imports — as part of its crackdown on fentanyl and other drug-related flows.

But using tariffs as a protectionist measure on normal imports from long-standing trading partners finds no explicit or implied support in US statutes. The court’s ruling thus restored the legislative limits that prevent misuse of emergency powers for broad economic warfare.

Now, the only option left for Trump is to appeal to the Supreme Court, which he is expected to do, although his chances of success are slim. And all of this is unfolding at a time when India is trying to negotiate its own BTA with the US.

Lesson For India: Bargain Hard

Given how Trump plays his cards — starting with high tariffs at the negotiating table and then softening his stance based on the partner's reaction — India should consider adopting a similar strategy.

The US counterpart is expecting more market access in agriculture and government procurement. For some products, such as almonds, blueberries, raspberries and bovine meat, India has already imposed high tariff measures. India stands to lose little, as our farmers do not grow these products, so there is no significant harm in reducing tariffs on them.

Similarly, opening up contracts in the government procurement space is unlikely to make a big difference, given the oligopolistic market structure dominated by industry giants like Adani, Ambani, Tata and Birla, who continue to 'rule the roost'.

Instead, India should negotiate firmly on issues like increasing visa quotas for its software and white-collar professionals, which are a crucial component of India’s service exports.

There is hope that both the court rulings and the aggressive behaviour of Trump's allies will prompt a more lenient stance from the White House. The court decision has already brought relief to millions of small businesses in the US, particularly those that rely on imports from China.

Tariffs: Always Bad For Trade

It is well documented that tariffs disrupt global trade flows — the very flows that have underpinned five decades of unprecedented prosperity. Arbitrary protectionism introduces inflationary pressures, increases business uncertainty, and can trigger retaliatory measures from trading partners.

In sectors like pharmaceuticals, the impact is especially regressive. Demand for medicines is largely price inelastic, which means importers can pass on higher costs directly to consumers, often with disproportionate effects on lower-income households.

Historical examples suggest that tariff-led protectionism rarely delivers long-term economic strength. Consider Argentina. At the start of the 20th century, its per-capita income was among the highest in the world, rivalling the US and exceeding France and Germany.

But a combination of inward-looking policies and trade restrictions led to decades of stagnation. Today, Argentina’s per-capita income stands at roughly US$ 14,000, compared to US$ 83,000 in the United States.

In contrast, the US embraced openness. After World War II, as it grew wealthier, domestic labour costs made it less competitive in traditional industries such as textiles and garments.

Rather than resisting the shift, US policymakers chose to invest in higher education, promote scientific research, and implement a liberal skilled-labour immigration policy. They did not seek to dominate in low-margin manufacturing, but aimed for leadership in high-value services and innovation.

Trump’s recent tariff measures reflect a reversal of that trajectory. Yet in practice, importers and businesses have found ways to adapt or even circumvent the tariffs.

One common method is to alter the country of origin — rerouting goods through third countries that face lower US tariffs. Another is the use of the ‘first sale rule’, under which import duties are calculated based on the initial sale price, rather than the final retail markup.

For example, if a Chinese manufacturer sells toys to a wholesaler, who then adds a markup before selling to a US retailer, the duty can still be assessed on the original manufacturer’s price. This allows retailers to reduce their effective tariff burden, blunting the policy’s intended effect.

How The World Is Negotiating Trump Tariffs

International response has been swift and coordinated. Major US trading partners — including China, the European Union, and Japan — have treated Trump’s actions not as legitimate economic policy but as strategic provocation.

They understand that tariffs alone cannot resolve America’s trade deficit and view the US posture as a negotiating tactic rather than a long-term solution. Japan, in particular, has pressed hard for the removal of tariffs on metals and auto components, insisting that existing levies are already high and disproportionately punitive.

Ultimately, tariffs are a blunt instrument. While they may generate political capital in the short term, their long-term consequences often weaken the very economy they claim to protect.

Trump’s tariff wall, built on shaky legal ground and poor economic logic, is now beginning to crumble under the weight of facts — and of the law. 

(The writer is a professor at Mahindra University. Views are personal)