K.C. Singh | US Court Forces Trump’s Tariff Reset: World In Fix?

Since US President Donald Trump unleashed his “Liberation Day” global tariffs over a year ago, the world has struggled with the disruption. It was further complicated by the American motives being not purely trade-related. Tariffs became a weapon to compel compliance with President Trump’s geopolitical preferences and biases.

Different nations reacted in different ways. Some quickly swallowed their pride and chose compromise, even at the cost of economic interests. This produced apparently unequal trade deals, justified tactically to avoid confrontation and await Mr Trump’s difficulties to multiply, both at home and abroad. The European Union opted for this line, although subsequently Mr Trump’s Greenland annexation demand created disharmony. Others like China retaliated by withholding US access to Chinese rare earths, compelling a US climb-down and lowering of tariffs from punitive levels. A temporary trade truce has followed. Yet others, like India, held protracted trade talks while the US meanwhile imposed 25 per cent punitive tariffs for importing Russian oil. Some nations, to appease President Trump, even committed huge investments in the US. For instance, Japan offered to invest $500 billion, while South Korea promised $350 billion. The model that emerged for effective handling of President Trump was to provide him headline-creating concessions, employable by him domestically to boast success. He justified the massive tariffs as enabling the balancing of trade, forcing manufacturing to shift to the US mainland and reducing dependence on foreign products.

Pakistan provided yet a different model for US-handling, involving a mix of flattery, by endorsing Mr Trump’s claims of mediating the ceasefire after India’s Operation Sindoor, and economic and financial allurements. In the latter category fell Pakistani support for the Trump family’s cryptocurrency business as well as promised US access to Pakistani rare earths and chemicals.

President Trump’s social media claims about his tariff policy generating a trade surplus and massive job creation was contradicted by economic and trade data revealed just before the US Supreme Court ruling. The trade deficit was up, especially in goods. With China, the US trade deficit did fall, but overall, US exports also fell, especially agricultural exports to China. Manufacturing jobs fell by 80,000. Thus, President Trump’s claims on Truth Social that the trade deficit had dropped by 78 per cent and would entirely disappear this year proved fallacious.

Perhaps he was misled by the trade deficit dropping to the lowest level since 2009 in October. However, it surged again in the following two months.

The US “Liberation Day” tariffs had been imposed under the Internal Emergency Economic Powers Act of 1977. The Supreme Court ruled that “IEEPA does not authorise the President to impose tariffs”. It reasoned that the framers of the US Constitution did not vest taxing power in the executive.

That immediately raised two issues. One, what happens to the almost $100 billion of tariffs already collected by the US government and their likely reimbursement to American importers. Two, the status of the already concluded trade deals, most with higher tariff numbers and one-sided conditions favouring the US? For India, the second issue is immediately relevant because the India-US trade deal still awaits formalisation. Therefore, would the Indian commitments, such as not importing oil from Russia, still stand?

President Trump lambasted the US Supreme Court judges, especially his own nominees. The 6-3 split verdict indicates that half the conservative judges, numbering six out of the nine, had shifted sides. President Trump immediately imposed fresh 10 per cent global tariffs under Section 122 of the 1974 Trade Act. They were raised soon after to 15 per cent.

US trade representative Jamieson Greer has maintained that they had found means to “reconstruct” the tariffs eliminated by the Supreme Court. The new section used, however, relates to a balance of payments deficit enabling tariff imposition, not trade deficits. Moreover, these are valid only for 150 days. Thereafter, it requires US congressional approval. Thus, President Trump can no longer dangle tariffs like the knights twirling their chain maces. There are procedures which must be followed, both before imposing tariffs and afterwards.

Thus, the US is planning to use two other sections of the same law. Section 301 allows imposition of individual country tariffs if discriminatory trade practices can be established. This involves examining possible industrial excess capacity, suspected forced labour, the pricing of pharmaceuticals, discrimination against US tech companies and trade in seafood, rice, etc.

Another employable legal provision is Section 232 of the 1962 Trade Act, relating to national security. That has already been used for higher tariffs on steel, aluminium and cars. It therefore appears that the Trump administration is likely to insist that commitments under already finalised trade deals must be abided by, otherwise they will unleash fresh tariffs under these other provisions of the law.

One thing is nevertheless clear. The US Supreme Court has weakened the negotiating position of the US. With President Trump headed to China for a three-day visit starting March 31, the effectiveness or otherwise of the reconstructed US tariffs strategy should emerge. China has positioned itself strongly behind Iran, having transferred more lethal offensive and defensive weapons. Logically, the US should not attack Iran before the China visit. But Trumpian logic can vary.

Beijing is unlikely to offer one-sided concessions. The trade negotiation, coming after the US court ruling, strengthens the Chinese position. This writer, speaking on a television show, had suggested on the day the India-US trade deal was announced that perhaps India could have waited till the expected court ruling on tariffs. The Sino-US negotiations at the sum it level would show how China uses that advantage.

The United States is, meanwhile, focusing on Section 301 investigations on the trade practices of Brazil and China. While the US wants a firm commitment on the export of Chinese rare earths, China also needs a stable trading environment to overcome its domestic economic travails and top-level Army purges. In conclusion, President Donald Trump can at best be embarrassed and partially constrained by court rulings. Only a serious setback in the November mid-term elections to the US Congress can bind his hands. India’s dilemma is that, like most of the developed world, it has to engage and not confront the US, to buy time. However, that stance has domestic political implications as it hurts the government’s projection of strategic autonomy and vocal leadership of the Global South.

The writer is a former secretary in the external affairs ministry. He tweets at @ambkcsingh.