What the Recent US Court Ruling Means for India-US Trade Relations

Impact of US Court Ruling on Trade Agreements

New Delhi: The recent legal challenges faced by former US President Donald Trump regarding tariffs have intensified the unpredictability surrounding the US tariff landscape. Experts advise that India should hold off on advancing the proposed bilateral trade agreement until the United States establishes a more stable and legally sound trade framework.

This court ruling serves as a significant reminder that Trump's global tariffs were in breach of WTO (World Trade Organization) regulations, and their annulment by US courts is a positive indication for global trade standards.

In a notable ruling, a US federal court deemed the 10 percent global tariffs imposed by Trump as "invalid" and "unauthorized by law." These tariffs, which affected all nations including India, were enacted on February 24 for a duration of 150 days following a prior Supreme Court decision that nullified earlier extensive tariffs.

"The ongoing ambiguity surrounding US tariff policies, with numerous Trump-era tariffs being invalidated by the courts, complicates India's ability to make long-term trade commitments," stated Ajay Srivastava, founder of GTRI.

He emphasized that India should wait for the US to create a more reliable trade environment before finalizing the Bilateral Trade Agreement.

"Currently, the US is not inclined to lower its standard Most-Favored-Nation (MFN) tariffs while expecting India to reduce or eliminate its MFN duties across various sectors. Under these circumstances, any trade agreement risks being unbalanced, with India making permanent market access concessions without receiving substantial tariff advantages in return," Srivastava added.

Shishir Priyadarshi, President of the Chintan Research Foundation and former WTO Director, echoed that the federal court's decision highlights the illegality of Trump's global tariffs, and their annulment is a positive sign for multilateral trade norms.

"However, with the ruling currently on hold, uncertainty persists. We must remain cautious, as the US may explore new methods to bypass this ruling," Priyadarshi warned.

The United States Court of International Trade, in a 2-1 decision on May 7, concluded that the Trump administration exceeded the authority granted by Congress under Section 122 of the Trade Act of 1974. This ruling came less than 50 days after the tariffs were introduced on February 20.

According to GTRI, this decision presently affects only the parties involved in the case, including the state of Washington, spice importer Burlap & Barrel, and toy manufacturer Basic Fun!.

"The tariffs will remain in effect for other importers while the US government appeals the ruling. The court opted not to impose a nationwide injunction at this stage, limiting relief to the litigants involved rather than issuing a broader injunction, a practice sometimes adopted by US courts in politically sensitive cases involving executive authority," Srivastava explained.

With both the reciprocal tariffs and Section 122 tariffs now invalidated, the US tariff system is reverting to its pre-Trump structure, which is based on standard Most-Favored-Nation (MFN) tariff rates under the WTO framework.

Section 122 allows the president to impose import tariffs of up to 15 percent for a maximum of 150 days without congressional approval to address serious balance-of-payments issues.

These tariffs were enacted on February 20, 2026, shortly after the Supreme Court of the United States invalidated reciprocal tariffs.

Regarding Section 122 tariffs, Srivastava noted that these levies were legally weak since the law was originally intended to address serious balance-of-payments crises and ongoing dollar outflows.

"However, since 1973, the US has operated under a free-floating dollar system, where trade imbalances are adjusted through exchange rates and global capital flows rather than import restrictions. The US continues to experience significant trade deficits while still attracting substantial foreign investment due to the dollar's status as the world's dominant reserve currency," he added.

With courts invalidating both the reciprocal tariffs and Section 122 tariffs, the Trump administration is now expected to rely more on targeted trade measures such as Section 301 investigations and Section 232 national-security tariffs.

These measures could be directed at partner countries in sectors like steel, semiconductors, automobiles, pharmaceuticals, and critical minerals.

"The legal uncertainty surrounding US tariffs is also impacting trade negotiations. Malaysia has already withdrawn from its trade agreement with the US, while several other nations are reconsidering their trade agreements with the US," Srivastava concluded.