The US tariff reset changes India’s bargaining position

An Indian exporter can face a lower US tariff this week and still become less attractive to an American buyer. The US Supreme Court held on 20 February that the International Emergency Economic Powers Act did not authorise the challenged tariffs. The administration ended those duties and imposed a new 10% surcharge under Section 122 of the Trade Act, effective 24 February, with exemptions. For India, the immediate benefit is a lower additional charge on some covered goods. The loss is that a broad surcharge can erase the relative advantage India hoped to secure in a country-specific agreement. Delhi should use the change to negotiate more predictable access, with the comparison made product by product. US Supreme Court opinion, 20 February · US order ending the IEEPA tariffs · Section 122 proclamation and exclusions

The promised rate and the duty collected have different legal bases

The February bilateral framework said the US would apply an 18% reciprocal tariff on originating Indian goods under Executive Order 14257, including products such as apparel, footwear and some machinery. The joint statement described a framework for an interim agreement. The administration’s subsequent termination order ends the collection of the relevant IEEPA duties. The new proclamation instead imposes a temporary 10% additional charge for 150 days under Section 122, subject to its exclusions. The administration discussed an increase to 15%, the statutory ceiling under this authority, but the published proclamation that took effect specifies 10%. An importer must distinguish what was negotiated, what has been discussed and what customs actually collects. US–India joint statement on the interim framework · US order ending the IEEPA tariffs · Section 122 proclamation and exclusions · Reuters on the surcharge taking effect

The surcharge also sits alongside ordinary tariffs and other trade measures. The proclamation generally adds the surcharge to other duties but provides that it will not stack on the portion of an import subject to Section 232 tariffs. It also lists excluded products. Firms should therefore model the full US tariff line, applicable sectoral duties and country of origin. A $100 shipment does not universally cost $110 at the border. There can also be freight, fees and contract terms that determine which party pays the duty. A negotiator who describes the change as a single new tariff for all Indian exports risks making the wrong comparison in exactly the sectors that matter most. Section 122 proclamation and exclusions

A lower duty can leave India with less of a price advantage

Consider a covered product with a customs value of $100 and assume identical ordinary duties and freight across suppliers. Compare a hypothetical 18% additional rate for India with 20% for an alternative origin. On the same value, the duty-inclusive amounts would have been $118 and $120. Under a common 10% surcharge they are both $110. India has $8 of relief at the border in that comparison, and the competitor has $10. The Indian supplier has lost the $2 relative advantage that would have helped it keep the order. These comparator rates are illustrative. If a competing product is exempt, or carries a different ordinary duty, the gap changes again. US–India joint statement on the interim framework · Section 122 proclamation and exclusions

The converse can be just as important. An Indian producer that was paying a higher rate than rivals may gain relative ground when the gap narrows. A buying office usually has several ways to respond. It can demand a lower factory price, renegotiate its own retail price or shift the next order to another supplier. How much of the tariff relief stays with the Indian factory depends on the buyer’s alternatives and on whether the supplier can insist on keeping its dollar price. A producer with reliable delivery, a certified factory and short lead times can bargain more effectively than a supplier selling an interchangeable product at a thin margin. The potential gain is therefore as much a question about who has options as about the tariff schedule.

Uncertainty changes the order even before duties change again

The 150-day limit creates a mismatch with commercial decisions. An importer placing a seasonal order may care about the duty when goods enter the US, not the rate when the purchase order is signed. A supplier deciding whether to add a production line needs a longer horizon still. A short-lived reduction can help existing orders while doing little to unlock investment. Contracts can allocate the risk through price-adjustment clauses, but the supplier with the least bargaining power may still end up holding the inventory if a buyer can defer or cancel. Reuters reported that India postponed a planned trip by its negotiators after the ruling. That pause makes sense if the price and legal basis of the bargain have changed. Section 122 proclamation and exclusions · Reuters on the postponed talks

The strongest argument for pressing ahead quickly is that a written deal can reduce uncertainty about product exclusions, documentation and future access even when the temporary headline rate is lower. Suppliers may value knowing the tariff and origin rules for a season more than they value a few extra weeks of a lower rate. This is a reason to keep negotiating. It is also a reason to evaluate the terms against a realistic alternative. If the bilateral deal leaves an Indian product facing more than comparable suppliers for little additional certainty, its benefit to that product is small. If it provides durable access for a labour-intensive product whose rivals have stronger terms today, the value can be substantial even if the tariff is positive. US–India joint statement on the interim framework · Section 122 proclamation and exclusions

Use a product-level test for both negotiations and relief

Delhi should build a list of products where the new regime materially changes the relative US duty, and combine it with evidence on employment, export margins and the ability to sell elsewhere. Textile, leather and other factories do not experience a tariff uniformly. A firm whose order is delayed may need bridging credit. A plant whose buyers have shifted permanently may benefit more from product adaptation and access to another market. A tariff headline alone cannot tell a bank which case it is financing. Comparing confirmed orders, cancellations and realised prices by product and destination would help target assistance and avoid paying firms whose US sales were never at risk. US–India joint statement on the interim framework · Reuters on the postponed talks

The investment test is especially demanding for smaller suppliers. A buyer can switch origins for an order without changing the location of its own assets. A factory deciding whether to invest in dyeing capacity or a new production line may be committing capital for years. In that case, lower tariffs for one season do little to improve the investment case unless the buyer makes a credible commitment to future orders. The best negotiating gains are therefore those that reduce the risk of an abrupt change in conditions during the life of the investment, including clear rules and workable transition periods.

Trade data should also distinguish values from quantities. If exporters cut dollar prices to keep buyers, shipment value can fall even while units shipped hold up. If duties push American buyers to accelerate arrivals, a strong month can borrow orders from the next. The cleanest evidence would compare Indian and competing shipments of the same tariff line, control for seasonality and look for persistence after the shipping window closes. Where data allow, track products covered by the surcharge separately from exempt products. A rise in orders concentrated in the lines where India gained relative access would strengthen the case that the policy change helped. Section 122 proclamation and exclusions

India’s bargaining position improves when US buyers depend on suppliers they cannot readily replace. It weakens when access turns on a temporary tariff that changes for everyone. The next agreement should be judged by the stability of entry conditions, by the relative price faced by an American importer and by actual orders for Indian producers. A broad tariff cut this week gives some firms welcome relief. A lasting competitive advantage depends on whether those firms can quote with confidence and keep a larger share of the orders that follow.