US tariffs: Supreme Court ruling creates instability, what's next for India?

Until last weekend, the US was unpredictable because its president wanted it that way. But after Friday's Supreme Court order on tariffs, Washington has transitioned from unpredictable to becoming genuinely unstable, a change that may reset the board for India, but not necessarily the play. At least for now.

Legal details aside, there's the global political impact, both in terms of image and substance. Trump 2.0's unpredictability was, in fact, a planned one. It was deployed by White House to further its interests, extract what it wanted, and disrupt where required. But this worked on the premise that Trump's call was the final word from the US. By judging the invocation of IEEPA (International Emergency Economic Powers Act) as illegal, the court has put a serious credibility question on whatever action White House takes from now on. This is complicated by the fact that Trump won't back off either.

Tariffs served three broad political objectives for Trump, all of which are now severely impacted:


Assured revenue stream: Estimated earnings from tariffs are about $200 bn. This stream, crucial for funding the MAGA agenda, is now under a legal cloud.

Reindustrialising America: Tariffs were used to strike deals through which commitments to invest in the US were locked in from the EU, Britain, Japan, South Korea, etc. This, too, is now compromised.

Global political tool: This was perhaps the most important facet. Sliding tariffs back and forth was an option liberally used for non-economic reasons like the Greenland issue. That is now not available.

The broad consensus is that Trump won't back off easily. But what's Plan B? Measures announced so far, including imposition of 15% tariff under Section 122 of 1974 Trade Act, are interim. They lack the political sting IEEPA gave Trump. Even sectoral tariffs through Section 232 of 1962 Trade Expansion Act, and Section 301, unfair trade practices clause in the Trade Act, are cumbersome investigation-led processes that won't serve Trump's political style or purpose.

As for Section 338 of the 1930 Tariff Act, which has never been used, the jury is out regarding its effect. There's a body of legal opinion on the conditions in which these can be applied.

The crux is that the interim measures are essentially survival tactics that can, at best, ensure the revenue stream from tariffs doesn't immediately plummet, allowing the Trump regime to work out more permanent measures. These 150 days may provide that space.

But here's the rub: whatever White House decides, it will be open to legal challenge. For instance, understanding from Section 122 is that it must be uniformly applied and can't be increased and decreased based on political requirements. If, say, Trump were to try and keep it politically flexible, a legal challenge is almost certain. In fact, the Supreme Court order could generally embolden critics to serve up more legal challenges.

Next, his interim measures can't fully escape Congressional oversight. Which means Trump will have to look for a more permanent solution. But can anything without legal sanction or Congressional approval be treated as predictable and permanent? Truth is, the institutional tussle set off, first, by invocation of IEEPA, and now its revocation by the Supreme Court, genuine instability in Washington due to a potential lack of clarity on what will hold as policy and what won't.

For India, it's good that it has made no legally-bound commitments except for a joint statement to work on an agreement in the future that's yet to gain sanctity. It will, like others, ask Washington to clarify its position following the court order and the legal basis to continue the negotiations.

To walk away from any further engagement, as some political quarters suggest, would be foolhardy. That would just agitate the White House. There are other countries and blocs in more advanced stages of their trade deals with the US. And it's best not to stand out, or become a political target, when concerns of others in the queue are more immediate and bigger.

What the situation demands is to be grounded and nimble. Dealing with an unstable US is challenging, one that will require New Delhi to keep multiple channels alive - with White House, the regime, US Congress and various lobby groups.

Further, there is no reason for uncertainty to cloud the overall climate of the relationship that has improved following the withdrawal of the 25% additional penalties on account of Russian oil trade. Progress on other aspects of the relationship, based on opportunities they bring, can move unencumbered.

That said, strategy of trade diversification and search for more stability anchors for economic engagement by way of pursuing FTAs with other partners and ensuring these arrangements reach their logical conclusion are now a matter of political urgency, especially in the light of growing instability in the US.

Meanwhile, as politics works on building alternatives for economic stability, relevant businesses will have short windows of opportunity, like the fact that US tariffs will effectively be down to 15% from 25% for Indian goods. This is the best India will get since Trump tariffs started rolling. So, the time now is for both politics and business to capitalise and cooperate, knowing well that choppy waters can suddenly change course for the worse.