There are some defeats more triumphant than victories. So said the French philosopher Michel de Montaigne. On Friday, Donald J Trump lost the case on tariffs. The tariffs, scaffolded by the International Emergency Economic Powers Act (IEEPA), were struck down 6-3 in the US Supreme Court. His loss, however, is not a win for those harangued with his threats. In the rough-and-tumble track of Trumpism, any loss is alchemised into a victory.
Typically, Trump converted humiliation into a fresh grievance. And grievance, we know, is the staple diet in Trumponomics to build political muscle. Trump went ballistic on the court’s ruling, deploying the dissenting notes as the imperative. His emotional rants occupied a range—angry and ashamed, finding the ruling disappointing and the judges a disgrace to the nation.
Over 324 days back, on what was described as Liberation Day, Trump imposed tariffs on over 180 countries and an island of penguins. He leveraged the IEEPA to bend the world order. The 1977 law allows the US president to address declared emergencies concerning “unusual and extraordinary” threats to national security, foreign policy or the economy.
No president before Trump had invoked these powers. The legal challenge, in its journey past the lower courts, raised questions on the use of emergency powers. Arguably, the US could not be at war with 180 nations and the island of penguins. The petitioners stated that the use of IEEPA triggered the ‘major questions’ doctrine, that the power to regulate is not the same as the power to tax. The Supreme Court concurred and ruled that the US president could block trade, but did not have the authority to tax.
The tide had shifted as early as November, when the Supreme Court judges underlined that imposing tariffs by executive order violated the doctrine of delegated powers and impinged on the powers of Congress to tax, underlined in Article 1 of the US Constitution. Indeed, the consensus among the cognoscenti was that the Trump-Vance Administration would be found on the wrong side of the Supreme Court ruling.
Trump had been hoping against hope, but was clearly prepared for the setback. This column had, in January, observed that Trump planned to win even if he lost and would use an armoury of statues to restore tariffs if they were struck down. As in the IPL, the US president was ready with the first ‘impact substitute’—Section 122 of the Trade Act of 1974, which allows the president to flag concern about trade deficits and impose universal tariffs. Within two hours of the ruling, Trump imposed a 10 percent tariff on all nations, updated later to 15 percent.
Trump is also actively considering the many statutes in the armoury. Beyond Section 122, which must be ratified by Congress after 150 days, there is the option of using Section 301 of the same law to launch investigations on whether a foreign country’s acts are “unreasonable or discriminatory”. The objectives could be wide-ranging—they could be used, in part, to re-legalise the deals signed thus far. Trump could also use Section 232 of the Trade Expansion Act of 1962, arguing a threat to national security—as has been done for steel, aluminium, automobiles and lumber imports—on new segments such as pharma and aircraft parts.
Team Trump can also invoke Section 338 of the Tariff Act of 1930, which allows imposition of 50 percent tariff if the president finds “discrimination”, and Section 201 of the 1974 Trade Act if there is evidence of serious injury to American firms’ interests. There is a new legislative option too—the Reciprocal Trade Act, mooted in January 2025 by Republican Riley M Moore to refashion trade deals. Will it muster the numbers? The famous trifecta of power in Washington is weakened—the Republicans now have a majority of only four in the lower House of Congress and six representatives seem against Trump’s tariff tirade.
Interestingly, the Supreme Court did not weigh in on the contentious issue of refunds. The US government has collected over $175 billion in tariffs and their refund will trigger a market for chaos. Indeed, the term ‘refund’ appears just four times in the 170-page ruling, that too only in the dissent note by Justice Brett Kavanaugh. Ostensibly, the issue has been kicked towards the lower courts. Refunds seem unlikely, as the principle of remand without vacatur could be invoked.
How does all this play out for India? First things first. The so-called framework of interim agreement is yet to be signed; so it is in limbo. As for exporters, the applicable tariffs would be at the earlier level (an average of around 3 percent) plus 15 percent. Theoretically, the US president cannot play favourites between two competing nations. The bad news is that Trump could well wield other three-digit statutes to expand threats and re-ignite uncertainty.
It is unlikely that the defeat will make ‘tariff’ a less favourite word for DJT. Trump has nurtured the notion of tariffs as an equaliser for decades. He is unlikely to change his parish this late. The worst-case scenario is that he would ramp up both on economic and military fronts. For now, the adage ‘Trump tariffs are dead; long live Trump tariffs’ will ricochet in echo chambers around the world.
India would do well to expect the unexpected. The best-case scenario would be a palpable rise in inflation, constraining the US Federal Reserve from cutting rates. The term ‘affordability’ has a potent ring in political economies.
Shankkar aiyAr
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India
(shankkar.aiyar@gmail.com)