The United States Court of International Trade on May 7 invalidated the 10 per cent global tariffs imposed by President Donald Trump under Section 122 of the Trade Act of 1974, ruling that the measure was “unauthorized by law.” The tariffs, introduced on February 20, were intended as a temporary measure to address what the administration characterized as serious balance-of-payments deficits, citing a $1.2 trillion annual goods trade deficit and a current account deficit equivalent to 4 percent of GDP. The court’s decision, delivered by a divided three-judge panel in a 2-1 vote, found that the law governing Section 122 was not designed to permit broad tariffs targeting trade imbalances.

The case was brought by two small U.S. businesses—toy company Basic Fun! and spice importer Burlap & Barrel—as well as the state of Washington. The plaintiffs argued the tariffs were an unlawful attempt to circumvent a previous Supreme Court ruling that struck down Trump’s 25 per cent tariffs imposed under the International Emergency Economic Powers Act (IEEPA). The court’s ruling applies specifically to these plaintiffs, granting them immediate relief, but the tariffs remain in effect for other importers pending the administration’s appeal. The U.S. government has signaled intentions to challenge the ruling in the United States Court of Appeals for the Federal Circuit, with the potential for further litigation that could reach the Supreme Court.

President Trump criticized the decision, attributing it to “two radical left judges” and expressing frustration with the judiciary’s impact on his trade policies. Meanwhile, legal representatives for the plaintiffs welcomed the ruling, though uncertainty persists for exporters and importers given its limited scope and ongoing legal proceedings.

The ruling injects further uncertainty into ongoing negotiations between the United States and India on a potential Bilateral Trade Agreement (BTA). After a recent bilateral meeting in Washington, India’s commerce department indicated that discussions on an interim trade agreement and a broader BTA had progressed constructively, covering issues such as market access, non-tariff barriers, customs facilitation, investment promotion, digital trade, and economic security considerations. However, the persistent instability in U.S. trade policy, marked by repeated judicial setbacks to Trump-era tariffs, complicates India’s position.

Ajay Srivastava, founder of Delhi-based think tank Global Trade Research Initiative (GTRI), advised caution. He noted that the unpredictability surrounding U.S. tariffs complicates justifications for long-term commitments by India. Srivastava emphasized that the United States has so far been unwilling to reduce its standard Most-Favored-Nation (MFN) tariffs while expecting India to lower or eliminate its own across multiple sectors, raising concerns over a potentially one-sided agreement. He added that the U.S. might increasingly rely on targeted trade measures such as Section 301 investigations and Section 232 tariffs related to national security in sectors including steel, semiconductors, automobiles, pharmaceuticals, and minerals.

Although the court ruling sets a precedent limiting presidential authority on tariffs under Section 122, the immediate impact on global traders remains limited. The government’s anticipated appeal could extend the legal uncertainty for several months, leaving importers and exporters awaiting clearer guidance on U.S. trade policy direction.