India Should Reassess US Trade Deal After Supreme Court Limits Trump's Tariff Powers
The US Supreme Court on February 20, 2026, struck down President Trump's sweeping tariffs imposed under the International Emergency Economic Powers Act (IEEPA) in a 6-3 ruling (Learning Resources, Inc. v. Trump), holding that IEEPA does not authorise tariff-setting powers.
Following the ruling, President Trump signed a new executive order imposing a 10% global tariff (subsequently raised to 15%), seeking an alternative legal basis for broad tariff authority.
India and the US had already agreed on an interim trade framework (February 6, 2026) involving lowering the US reciprocal tariff on India from 25% to 18% — this framework's legal basis is now uncertain post-ruling.
Analysts argue India now has a stronger negotiating position: the tariff threat that urgently drove India to make concessions (eliminating tariffs on US industrial and agricultural goods) has been legally weakened, giving India room to pause and renegotiate from firmer ground.
The interim Bilateral Trade Agreement (BTA) is expected to be formally signed in approximately April 2026, with a full-fledged BTA targeted by late 2026 or 2027.
IEEPA: What It Is and Why the Supreme Court Struck Down Tariffs
The International Emergency Economic Powers Act (IEEPA), enacted by the US Congress in 1977, grants the President broad authority to regulate international economic transactions after declaring a national emergency under the National Emergencies Act. IEEPA was designed to limit the previously unchecked presidential powers under the Trading with the Enemy Act (TWEA, 1917). In Trump's second term, IEEPA was invoked to impose sweeping global tariffs — a use with no historical precedent (no president had ever used IEEPA for tariffs in its 47-year history before 2025). The Supreme Court ruled 6-3 that IEEPA's grant of authority to "regulate" international economic transactions does not include the power to impose tariffs, and that such extraordinary power would have been expressly stated by Congress had it been intended.
The ruling removed the legal anchor for the "reciprocal tariff" framework that had threatened 25% tariffs on Indian exports, creating strategic space for India in BTA negotiations.
India-US Bilateral Trade Agreement (BTA): Framework and Strategic Stakes
The India-US BTA is an ongoing negotiation for a comprehensive bilateral trade agreement — negotiations were formally launched in February 2025. India's merchandise trade with the US ($186 billion in 2024-25, with India running a ~$41 billion surplus) makes it the largest US trading partner after China and EU. The interim deal announced in February 2026 represented Phase 1: India committed to zero/reduced tariffs on US industrial goods and selected agricultural products; the US committed to reducing the reciprocal tariff from 25% to 18%.
With the IEEPA tariff threat legally weakened, India's concessions in the interim deal — particularly on agricultural tariffs (politically sensitive) and industrial goods — may need reassessment, giving India strategic leverage to secure better terms.
India's Trade Policy Framework: From MFN to FTAs
India's trade policy framework distinguishes between WTO-bound MFN tariff rates (applied to all WTO members), preferential tariff rates under Free Trade Agreements (FTAs), and applied tariff rates. India has signed FTAs/CEPAs with ASEAN, Japan, South Korea, UAE (CEPA 2022), and Mauritius. An ongoing concern is that FTAs have sometimes increased India's trade deficit rather than exports, leading to "FTA fatigue" before the UAE CEPA demonstrated positive results.
The India-US BTA, if comprehensive, would be India's most significant trade agreement with a developed economy — potentially reshaping India's export basket and supply chain integration with the US.
- IEEPA enacted: 1977 by US Congress
- Learning Resources v. Trump ruling: February 20, 2026; 6-3 majority; IEEPA does not authorise tariffs
- Post-ruling Trump executive order: 10-15% global tariff (non-IEEPA basis)
- India-US interim BTA framework: February 6, 2026; US reciprocal tariff on India → 18% (from 25%)
- BTA formal signing expected: April 2026
- India-US goods trade (2024-25): $186 billion; India's surplus: ~$41 billion
- Top Indian exports to US: gems and jewellery ($9B), pharmaceuticals ($8B), textiles and apparel ($8.5B)
- Section 232 steel tariff (still in effect): 50% as of June 2025
- De minimis suspension (still in effect): items under $800 no longer enter duty-free
- India-UAE CEPA: signed February 2022, effective May 2022 — India's most recent significant bilateral trade deal