MUMBAI: Analysts have said the US Supreme Court striking down the reciprocal tariffs as beyond the remit of the Constitution which vests such powers with the Congress has only more confusion and uncertainty for both exporters as well importers but for New Delhi the development is positive as it buoys sentiments and the financial assets.
“For India, this ruling is a positive development, buoying sentiments, and the rupee financial assets, while officials monitor new trade moves from the US. With the recent reduction in tariffs on India already easing the overall tariff burden ahead of the court ruling, additional economic lift might not be significant. The tariff overhang has been lifted, though broader geopolitical uncertainties persist,” Radhika, senior economist at DBS Bank said in a note.
But Gaurav Ganguly, head of international economics at Moody's Analytics said the latest twist only “introduces fresh uncertainty into the global economy,” citing the immediate reaction of President Trump who swiftly increased the tariffs to 15% for all under Section 122 of the 1974 law.
Rao also said the ruling undermines recent US trade deals with the EU, Japan, England, Indonesia, Vietnam, India, Malaysia etc, as all countries without/with deals face the same umbrella rate now.
According to her the gainers include Brazil, China, India, Canada, Mexico, Vietnam, while losers are Italy, Singapore, France who will see higher rates.
On the implication for New Delhi, Rao said, post ruling, the effective rate on India will be reduced by 5.6%, according to Global Trade Alert and 50-55% of the country’s exports will be free of the previous reciprocal tariff regime and face new lower rates.
“Most partners that have signed trade agreements with the US might revisit the terms, particularly prior purchase commitments, investment outlays, tariff cuts, and better market access to the US firms,” she added.
Ganguly further said US export partners may take comfort from the ruling, but relief could quickly give way to dismay as the administration seeks alternative mechanisms to maintain—or even increase—tariffs, such as the prospective 15% global rate now.
American importers may also face the thorny issue of compensation, including the prospect of reclaiming tariffs already paid to the federal government, a process that could prove highly contentious, he said.
On the other hand, Ganguly feels that countries that have reached trade deals with the US are unlikely to repudiate them immediately, as doing so would risk exposure to more punitive tariffs at a later stage.
“The most likely response will be to slow-walk both ratification and implementation. Even this approach carries risks, however, as the experience of South Korea shows. China, which does not have a deal with the US, is likely to conclude that its leverage over Washington has increased. Similarly, the EU may feel better positioned to push back against future US demands,” he added.