India now in 'middle ground' after fresh US tariffs but any hike will erode its advantages: UBI Report
A report by Union Bank of India (UBI) assessed that India occupies a relative "middle ground" in the new US tariff landscape after Section 122 of the Trade Act of 1974 replaced the earlier IEEPA-based tariff regime.
The US Supreme Court struck down IEEPA (International Emergency Economic Powers Act)-based universal tariffs in February 2026; the Trump administration responded within hours by invoking Section 122 to impose a flat 15% surcharge on most imports from all countries for 150 days.
India had negotiated an 18% tariff rate under the IEEPA regime; under Section 122 it now faces a flat 15% like most countries — marginally better but without the bilateral deal protection.
Countries like China (which faced 30-60% IEEPA rates) and Vietnam (which faced ~46% IEEPA rates) remain at much higher effective tariff levels, maintaining India's relative competitiveness advantage in US markets.
The UBI report warns, however, that any uniform tariff hike under Section 122 (which the president can extend or increase) could erode India's advantages gained by avoiding China-tier tariff exposure.
Section 122 — Trade Act of 1974 (US)
Section 122 of the Trade Act of 1974 authorises the US President to impose a temporary import surcharge of up to 15% on all imports for up to 150 days to address "fundamental international payment problems" (i.e., large current account deficits or balance-of-payments crises). Unlike IEEPA (which was used for targeted country-specific tariffs), Section 122 is inherently universal (applies to all imports equally).
Key Details
- Invoked: February 20, 2026 (within hours of Supreme Court striking down IEEPA tariffs)
- Rate: 15% surcharge on all US imports (raised from initial 10% on February 22)
- Duration: 150 days (expires July 24, 2026 unless Congress acts to extend)
- Scope: Universal — applies to all countries except products already subject to Section 232 tariffs (steel, aluminium) and USMCA duty-free goods
- Distinction from IEEPA: IEEPA allowed country-specific differentiated rates; Section 122 is flat and non-discriminatory
- Historical note: Section 122 was never previously invoked in its modern form; the Nixon "import surcharge" of 1971 was a 10% temporary surcharge under a predecessor provision
Section 122's non-discriminatory flat rate is both a relief for India (since China can no longer be targeted at higher rates than India) and a concern (India loses the bilateral deal advantage it had negotiated under IEEPA).
IEEPA — International Emergency Economic Powers Act
IEEPA is a 1977 US statute that grants the President broad emergency economic powers, including the ability to impose tariffs during a declared national emergency. The Trump administration used IEEPA to impose highly differentiated, country-specific "reciprocal tariffs" on US trading partners in early 2026.
Key Details
- Enacted: 1977 (replacing the Trading with the Enemy Act provisions for peacetime)
- Used for: Asset freezes, sanctions, export controls — historically; novel use for tariffs under Trump
- India's IEEPA rate: 18% (negotiated down from a higher initially proposed rate through bilateral discussions)
- China's IEEPA rate: 30-60% range (much higher, reflecting larger US trade deficit concerns)
- Supreme Court ruling (February 2026): Struck down IEEPA-based tariffs — held they exceeded presidential statutory authority without adequate Congressional authorisation
- Implication: IEEPA tariffs have been the primary vehicle for Trump's trade war; their invalidation forced a switch to Section 122
India had positioned itself advantageously under IEEPA — negotiating a relatively low 18% rate compared to China's 60% — gaining comparative export competitiveness. Section 122's flat 15% partially preserves but structurally changes this advantage.
India-US Trade Relations — Sectoral Exposure
Understanding which Indian export sectors face US tariff pressure is essential for Mains analysis of the bilateral economic relationship.
Key Details
- India's exports to the US (FY 2024-25): ~$80-85 billion (US is India's largest export destination)
- Key export sectors: Pharmaceuticals (~$8 billion), gems and jewellery (~$9 billion), engineering goods, textiles and garments, chemicals, IT services (not goods — separate track)
- US share of India's total exports: ~18%
- Tariff exposure summary: Under Section 122 — flat 15% on all goods; plus pre-existing Section 232 (steel 25%, aluminium 10%); plus sector-specific CVDs (solar 126%)
- Comparative position: China faces 30-60% tariffs + potential additional Section 301 layers; Vietnam faces 30-46% equivalent; India at 15% flat is relatively competitive
- India-US Bilateral Trade Agreement (BTA): Under negotiation; a comprehensive deal could exempt India from Section 122 surcharge and lock in lower tariff rates
India's "middle ground" advantage is contingent — if Section 122 is extended or tariffs raised universally, or if a bilateral deal with China is struck while India remains exposed, India's relative competitiveness window narrows quickly.
Trade Act of 1974 — Key Provisions for UPSC
The US Trade Act of 1974 is a foundational US trade law that created multiple mechanisms for trade remedy and presidential trade authority.
Key Details
- Section 201: Safeguard tariffs against a surge in imports causing "serious injury" to domestic industry — global, non-discriminatory; WTO-consistent if conditions met
- Section 301: Authorises USTR to investigate and retaliate against "unfair foreign trade practices" — used extensively against China (25%+ tariffs on $360 billion of goods)
- Section 122: Balance-of-payments emergency surcharge (up to 15%, up to 150 days) — now invoked by Trump
- Section 232 (Trade Expansion Act, 1962): National security tariffs — steel (25%), aluminium (10%) remain in effect separately from Section 122
- Trade Act 1974 also created: Trade Adjustment Assistance (TAA) for workers displaced by imports; Most Favoured Nation (MFN) provisions; authorisation for GATT negotiations
The legal patchwork of US tariff authorities (IEEPA → struck down → Section 122 activated) illustrates how US trade policy operates through multiple overlapping statutory authorities — knowledge of which authority applies to which tariff is directly testable in UPSC Mains (GS2/GS3 overlap).
- Section 122 surcharge rate: 15% (flat on all US imports)
- Section 122 duration: 150 days (from February 24, 2026; expires July 24, 2026)
- India's rate under previous IEEPA regime: 18%
- China's IEEPA tariff rate: 30-60%
- India's exports to the US (FY 2024-25): ~$80-85 billion
- India's share of US-bound exports in total exports: ~18%
- IEEPA tariffs struck down by US Supreme Court: February 2026
- Section 122 invoked: February 20, 2026
- UBI report: India occupies "middle ground" but advantages fragile if uniform hike applied
- Pre-existing Section 232 tariffs (still in force): Steel 25%, Aluminium 10%