India to pay 10% or 18% Trump tariff after US Supreme Court bombshell?

Confusion has prevailed on the duty India will now have to pay on its exports to the US after the Supreme Court struck down the sweeping global tariffs imposed by President Donald Trump. The move has once again left more questions than answers, typical of the chaos unleashed by Trump last year with his favourite tariffs. For India, exporters must once again adjust to a shifting target, just days after Trump reduced tariffs to 18% from 50% as part of a trade deal that has yet to be signed. Now, the major question is, will India have to pay a tariff of 18%, 10%, or 13.5% (including the pre-liberation day duty)? Stay with us, and we will clear the confusion.

Until recently, India was set to face an 18% tariff as per the interim trade deal negotiated with Trump earlier this month. Under the agreement, which is expected to be signed mid-March, the reciprocal tariff was cut from 25% to 18%. The additional 25% tariff that Trump imposed on India for purchasing Russian oil was done away with after the US President claimed New Delhi would stop its energy trade with Moscow.

However, on Friday, the US Supreme Court ruled that Trump could not impose tariffs in peacetime using the five-decade old International Emergency Economic Powers Act (IEEPA). This effectively removes the legal basis for the 18% reciprocal tariff imposed on India.

The legal shake-up would have seen India's tariffs drop to 3.5%, which New Delhi was paying before Trump's move, as Most Favoured Nation (MFN) status.

A fuming Trump moved quickly. By Saturday, the mercurial US President signed an order mandating a new 10% tariff on imports from all countries, including India, to replace the ones struck down by the Supreme Court.

For this, he invoked a never-used law known as Section 122. It gives US presidents the power to put in place tariffs up to 15% for 150 days, following which they would need approval from Congress. The 10% tariff will go into effect on February 24.

When Trump was asked to clarify the tariff rate on India, he said it would remain at 18%, as agreed earlier. However, the White House later clarified that, legally, India would be charged 10% tariff for now. Thus, the effective tariff for India now stands at 3.5% plus the 10% imposed under Section 122 by Trump, taking the total levy to 13.5%.

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