PYQ Relevance:
[UPSC 2019] What introduces friction into the ties between India and the United States is that Washington is still unable to find for India a position in its global strategy, which would satisfy India’s National self-esteem and ambitions” Explain with suitable examples.
Linkage: The article points out several trade and economic tensions between the U.S. and India. These include disagreements over the actual size of the U.S. trade deficit with India, the increase of tariffs on steel and aluminium imports from 25% and 10% to 50%, which also affects India, and warnings of possible tariffs on Apple products if they are made in India. |
Mentor’s Comment: In a major decision, five small U.S. businesses won a legal case against former President Donald Trump’s wide-ranging tariffs in the U.S. Court of International Trade. On May 28, 2025, the court ruled that the tariffs—ranging from 10% to 135% and affecting over 100 countries—were unconstitutional and illegal. This ruling matters globally, especially for countries like India, now facing increased 50% tariffs on steel and aluminium.
Today’s editorial focuses on the US Courts’ decision on tariffs, a key issue relevant to GS Paper II (International Relations) in the UPSC syllabus.
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Let’s learn!
Why in the News?
Recently, on May 28, 2025, a U.S. court ruled that the tariffs, ranging from 10% to 135% and applied to over 100 countries, were against the Constitution and not legal.
What was the legal challenge to Trump’s tariffs?
- Unlawful Executive Overreach: Five small U.S. businesses challenged Trump’s tariffs at the U.S. Court of International Trade (CIT), arguing that the President exceeded legal authority by imposing tariffs without Congressional approval. Eg: Firms dealing in wines, bicycles, and fishing equipment claimed economic harm.
- Violation of Separation of Powers: The lawsuit argued that the President’s sweeping tariffs bypassed legislative and judicial checks, undermining the constitutional framework. Eg: The court noted that trade rules must involve Congress, not unilateral executive orders.
- Misuse of National Emergency Powers: The court ruled that invoking a “national emergency” does not justify rewriting international tariff agreements. Eg: The CIT stated that such powers cannot be used to override trade commitments under WTO rules.
Why did the court reject the “national emergency” claim?
- Lack of Legal Basis: The court ruled that there was no statutory authority for the President to impose retaliatory global tariffs under a vague “national emergency.” Eg: Tariffs up to 135% were applied without Congressional sanction.
- Overreach of Executive Powers: The court stated that invoking national emergency powers cannot allow the President to override trade laws and international commitments. Eg: It held that such use disrupts the constitutional separation of powers.
- Absence of Real Emergency: The court found no credible evidence of an immediate or actual threat that would justify emergency trade measures. Eg: The cited trade deficit was not a sudden crisis but a long-standing economic condition.
- Distortion of Trade Deficit Data: The administration failed to account for services and arms trade while citing trade deficits as justification. Eg: U.S. cited a $44.4 billion deficit with India, while it actually runs a $35–40 billion surplus when services are included.
- Violation of International Obligations: The court emphasized that the tariffs contradicted U.S. commitments under WTO agreements and eroded global trade norms. Eg: The U.S. applied tariffs even to uninhabited territories like the Heard and McDonald Islands, showcasing arbitrariness.
How did the U.S. justify tariffs on India after WTO talks?
- National Security Pretext: The U.S. continued to claim national security grounds for the imposition of tariffs, even after WTO rulings against it. Eg: Despite WTO panels rejecting the justification in 2022, the U.S. raised steel and aluminium tariffs to 50% on India.
- Strategic Trade Leverage: The U.S. argued that enhanced tariffs served as negotiation tools to pressure trade partners into deals. Eg: The U.S. claimed the tariffs on India helped gain leverage in talks to finalize a bilateral trade agreement.
- Mutually Agreed Solution Bypass: Though India and the U.S. reached a “mutually agreed solution” at the WTO in 2023, the U.S. still extended new tariffs on India. Eg: The 50% tariffs imposed in 2025 contradicted the earlier settlement, undermining trust in WTO dispute resolution.
Which issues must India address in a U.S. trade deal?
- Removal of Additional Tariffs: India must ensure that the U.S. removes punitive tariffs on Indian exports like steel and aluminium, currently raised to 50%. Eg: The continuation of high tariffs impacts India’s manufacturing sector and export competitiveness.
- Digital Services Tax Clarity: India should seek guarantees that its digital services taxes will not face retaliation from the U.S. Eg: U.S. firms operating in India’s tech sector may be affected unless taxation issues are resolved amicably.
- Protection from Remittance Tax: India needs to negotiate exemption from the proposed 3.5% tax on remittances under the Trump One Big Beautiful Bill (OBBB). Eg: This would impact millions of Indian diaspora workers sending money back home.
- H-1B Visa Concerns: India must address growing restrictions and backlash against H-1B visas, which are vital for its IT and service industry. Eg: Tech companies rely heavily on H-1B visas for skilled Indian professionals working in the U.S.
- Cross-Border Services and Data Flows: India must ensure smooth cross-border delivery of services, including clear data flow regulations and digital trade provisions. Eg: This is critical for India’s BPO and fintech industries, which depend on uninterrupted digital transactions.
Way Forward:
- Pursue Balanced Trade Negotiations:
India should negotiate a comprehensive trade deal that protects its strategic sectors, ensures reciprocity, and strengthens economic resilience without compromising on national interests.
- Strengthen WTO and Multilateral Engagements:
India must continue to uphold and reform the WTO-based trade framework, using it as a platform to address disputes, promote fair trade practices, and build coalitions with like-minded nations.
