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.

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