Trump’s tariffs and a U.S.-India trade agreement Premium

In any trade agreement with the United States, a careful balancing of India’s interests is paramount

At the end of the day, it was not the big fight between nations, but a case brought by five small U.S. businesses that presented the biggest challenge yet, to U.S. President Donald Trump’s sweeping tariffs.

Tariffs are the substance of laws and regulations formulated after highly rigorous trade negotiations. The binding of tariffs through schedules of commitments in trade agreements, offers much needed certainty and predictability to businesses trading across borders. Which is why Mr. Trump’s sweeping tariffs — 10% to 135%, over 100 countries worldwide — were a stunning repudiation of the rules of trade. That it also extended to the barren Arctic marine reserves of Heard and McDonald Islands, uninhabited by humans, just highlighted the irony of a bizarre executive order.

This sweeping executive action also upended the fundamental principle of separation of powers between the three branches of government — the legislature, the executive and the judiciary — which lie at the heart of any democratic constitutional framework. That such an exercise of executive authority could happen without any checks and balances in the U.S., widely regarded as among the modern world’s oldest democracies with a strong constitutional framework, was another point of reckoning.

Five small and mid-sized U.S. businesses, dealing with wines, plastics, bicycles, musical circuits, and fishing equipment, took on the U.S. administration, and challenged the presidential executive order at the U.S. Court of International Trade (U.S. CIT), stating that the tariffs were unlawfully harming their operations and economic viability.

The Trump administration argued that the tariffs were necessary to address the “national emergency” created by U.S.’ trade deficits with all countries worldwide. Trade deficit occurs when imports exceed exports. A “deficit” is not necessarily bad for a country’s economic health. It only demonstrates the availability of consumer wealth to purchase imported goods. In any event, the U.S. administration, bizarrely, did not account for U.S. export of services in its calculation. For example, the U.S. has cited the $44.4 billion trade deficit with India. This, however, does not consider trade in services (which includes digital services, financial services, education) and arms trade, after considering which, the Global Trade Research Initiative has estimated that the U.S. actually runs a $35 billion-$40 billion overall surplus with India.

The U.S. CIT, in its judgment dated May 28, 2025, ruled that the worldwide and retaliatory tariffs exceeded any authority under law. The court cautioned against the blatant and overarching use of “national emergency” powers by the President. It noted that the mere incantation of “national emergency” cannot sound the “death-knell of the Constitution”, and, additionally, cannot enable the President to rewrite tariff commitments in international agreements.

The strong and powerful ruling, so far, has had little practical impact, having been stayed the very next day by a U.S. appeals court. The tariffs and the threat of tariffs, therefore, continue, and so does the pressure to conclude a trade deal with the U.S. The Trump administration had in fact, argued before the U.S. CIT that the enhanced tariffs provided it leverage in trade negotiations — an argument which the CIT ruled does not in any manner mitigate its legal infirmity. More egregious U.S. executive actions are promised as part of the Trump One Big Beautiful Bill (OBBB) — a proposed omnibus law which would reportedly also grant the executive immunity from enforcement of judicial orders.