What court setback to Trump's 10% tariff regime means for India-US trade talks

A US federal court’s decision striking down President Donald Trump’s across-the-board 10% tariffs has injected fresh uncertainty into the proposed India-US bilateral trade agreement (BTA), with experts suggesting that New Delhi should wait for a more stable and legally predictable trade framework before moving ahead.

The United States Court of International Trade, in a 2-1 ruling on May 7, held that the Trump administration lacked legal authority under Section 122 of the Trade Act of 1974 to impose the temporary 10% tariffs on imported goods.

The court termed the levies “invalid” and “unauthorized by law”, saying the administration had failed to establish the “large and serious United States balance-of-payments deficits” required under the statute.

The tariffs, introduced on February 20, were struck down less than 50 days later.

Uncertain US tariff policy

Think tank GTRI Founder Ajay Srivastava said the ruling underlines the uncertainty surrounding US tariff policy and raises concerns for countries negotiating trade agreements with Washington.

“The continuing uncertainty around US tariff policy, with major Trump-era tariffs repeatedly struck down by courts, makes any long-term trade commitments by India difficult to justify,” Srivastava said.

He said India should wait until the United States develops a more stable and legally reliable trade system before concluding the proposed BTA.

“At present, the US is also not prepared to reduce its standard Most-Favoured-Nation (MFN) tariffs, while expecting India to lower or eliminate its MFN duties across most sectors. Under such conditions, any trade deal risks becoming one-sided, with India offering permanent market access concessions without receiving any meaningful tariff benefits in return,” he added.

The ruling comes at a sensitive stage in India-US trade talks, with both countries claiming they are close to finalising the first phase of the bilateral trade agreement.

US Deputy Secretary of State Christopher Landau earlier this week said India and the US were “very, very close” to signing the pact after months of negotiations.

“We are very aware of India’s importance on the world stage. I think it is very important to get a final resolution of that trade deal,” Landau told reporters on the sidelines of the SelectUSA Investment Summit at National Harbour in Maryland.

The proposed trade agreement had already required recalibration after the US Supreme Court in February struck down Trump’s reciprocal tariffs imposed under the International Emergency Economic Powers Act (IEEPA).

Following that ruling, the Trump administration had shifted to a flat 10% tariff regime for all trading partners under Section 122, which has now also been invalidated by the trade court.

Experts said the back-to-back legal reversals effectively push the US tariff system closer to its pre-Trump structure based on WTO-bound MFN tariff rates.

Shishir Priyadarshi, President of Chintan Research Foundation and former WTO official, said the ruling is a positive signal for multilateral trade norms.

"However, with the decision held in abeyance, uncertainty lingers. We must remain vigilant, as the US may still seek new avenues to circumvent the ruling," Priyadarshi said.

The ruling currently applies only to the parties involved in the litigation, including the state of Washington, spice importer Burlap & Barrel, and toy maker Basic Fun.

The Trump administration is expected to appeal the ruling.

“The tariffs will continue for other importers while the US government appeals the ruling. The court chose not to block the tariffs nationwide at this stage,” Srivastava said.

He added that the Trump administration is now likely to rely more heavily on targeted trade actions such as Section 301 investigations and Section 232 national security tariffs.

On March 11, the Office of the United States Trade Representative (USTR) initiated a Section 301 probe into industrial policies and practices of 16 economies, including India and China.

Another investigation covering around 60 economies, including India, was launched a day later to examine policies related to forced labour-linked imports.

Srivastava also pointed to growing global caution over trade negotiations with the US.

“The legal uncertainty around US tariffs is also affecting trade negotiations. Malaysia has already walked away from its trade deal with the US, while several other countries are rethinking trade deals with the US,” he said.

India-US trade talks

India and the United States held three-day negotiations in Washington last month on the proposed first phase of the BTA.

The Indian delegation was led by Additional Secretary in the Department of Commerce Darpan Jain, while the US side was headed by Assistant US Trade Representative for South and Central Asia Brendan Lynch.

India and the US had announced the framework for the BTA on February 2.

Under the original framework, the US had proposed reducing tariffs on Indian goods to 18% from 50% and removing an additional 25% tariff linked to India’s purchase of Russian oil.

However, changes in the US tariff regime following successive court rulings have forced both sides to revisit parts of the proposed agreement.