The Trade Deal That Keeps Shifting Ground

This week, we’re deep-diving into the much-talked-about but barely understood India-U.S. trade agreement. Amid the chaos that the Iran-U.S. conflict is causing, it’s important that we don’t veer too far away from a policy that will potentially change the Indian trade mechanisms. Where the agreement stands, what it means for India, and what is unwritten between the policy lines; today’s edition will explore all.

India and the U.S. were weeks away from signing an interim trade agreement, and then a court ruling thousands of miles away changed the legal foundation that the entire negotiation was sitting on. For a complete understanding of the actual sequence of events and what it means for India, we’ll need to understand how U.S. trade law works, what an interim agreement actually is, and why some tariffs survived the court ruling while others didn't.

Most of Trump's tariffs were imposed using a 1977 law called the International Emergency Economic Powers Act, or IEEPA. The law gives the President broad authority to regulate international commerce during a national emergency. Trump declared a national economic emergency and used IEEPA to impose sweeping tariffs on countries across the world, including India.

The legal argument against this was straightforward: setting tariffs is fundamentally a tax power, and the U.S. Constitution assigns tax powers to Congress, not the President. On February 20, the U.S. Supreme Court agreed, ruling that the President needs Congressional approval before levying tariffs under IEEPA.

This is what wiped out the reciprocal tariffs on India. Trump had already reduced India's total tariff burden from 50% to 25% on February 6 by removing a penalty imposed on India's Russian oil imports. Under the interim agreement being negotiated, the remaining 25% reciprocal tariff was to be further reduced to 18%. The Supreme Court ruling removed the legal basis for those reciprocal tariffs before the deal could be signed.

Here's the part that matters for Indian exporters. The Supreme Court ruling only struck down tariffs imposed under IEEPA. Several other tariffs imposed under different legal authorities remain in full force and effect.

The 50% tariff on steel and aluminium imports was imposed under Section 232 of the Trade Expansion Act of 1962, which allows the President to restrict imports that threaten national security. This authority was not challenged in the Supreme Court case and remains legally intact. For India, this is significant because steel and aluminium are among the most substantial components of India's export basket to the U.S.

The tariffs on e-commerce shipments valued at under $800 also remain. These were imposed under separate authority and directly affect India's small and medium enterprises that had been routing exports through platforms like Amazon and Flipkart's U.S. operations, using the de minimis exemption that previously allowed duty-free entry for low-value shipments.

The newest pressure point is a 126% tariff on Indian solar module imports imposed on February 24, following a preliminary finding that Indian government subsidies were undercutting U.S. solar manufacturers. This was imposed under U.S. trade remedy law, specifically the countervailing duty mechanism, which allows domestic industries to petition for protection against subsidized foreign competition. This tariff has nothing to do with the IEEPA ruling and will not be affected by any broader tariff negotiation.

This is where a lot of the coverage has been unclear. An interim trade agreement is not a free trade agreement. It doesn't comprehensively restructure the trade relationship between the two countries. It's a partial, time-bound arrangement that addresses specific pressure points while the two sides continue negotiating a fuller deal.

In India's and the U.S.'s case, the interim agreement was designed to reduce the reciprocal tariff from 25% to 18% on the U.S. side, in exchange for India making specific concessions on market access for U.S. goods, likely in agriculture, dairy, and digital trade; areas where the U.S. has long pushed for greater access to the Indian market.

The Supreme Court ruling has now complicated this significantly. With the reciprocal tariffs gone, the U.S. has less immediate leverage to offer India in exchange for those concessions. And India has less immediate incentive to sign a deal that requires opening sensitive domestic sectors when the tariff threat that was driving the negotiation has been legally neutralised, at least temporarily.

Facing the Supreme Court ruling, the Trump administration moved quickly to find alternative legal authority. It is currently using a flat 10% tariff on all imports, imposed under a different statutory basis, for a period of 150 days starting January 24. Trump has indicated he wants to push this to the maximum permissible 15% under the relevant authority, though that hasn't happened yet.

The administration's position is that these tariffs are legally distinct from the IEEPA tariffs and that existing trade deals signed by other countries remain binding regardless of the court ruling. Trump warned countries against "playing games" with the ruling, threatening higher tariffs for anyone attempting to renegotiate. Commerce Secretary Howard Lutnick echoed this, saying the U.S. expects all trade partners to honour their commitments.

India's public response to the Supreme Court ruling was notably cautious. The Ministry of Commerce issued a careful statement saying it was studying the implications. The planned Washington visit by the Indian negotiating team was postponed indefinitely.

But India didn't step back entirely. Commerce Minister Piyush Goyal hosted Lutnick and U.S. Ambassador Sergio Gor in New Delhi on February 26, describing the meeting as fruitful. The negotiating track is alive.

The current situation has shifted leverage toward India in a way that wasn't true a month ago. India can only reduce its own tariffs on U.S. goods once a formal agreement is signed, meaning the U.S. needs the deal completed more urgently than India does right now. India has time to evaluate what it's actually agreeing to before committing to concessions in sensitive sectors.

The unresolved question is what happens when the 150-day tariff window expires. If Trump pushes tariffs back up to levels that hurt Indian exports, the negotiating calculus shifts again. For Indian exporters in steel, aluminium, solar, and the MSME sector, that uncertainty has real costs that accumulate with every week of delay.

Any deal India signs needs to be robust enough to survive the next court ruling, the next executive order, and the next round of preliminary findings. In the current U.S. trade environment, that is a harder bar to clear than it sounds.

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Anas Ahmad Tak