US Tariff Case vs President Trump: Supreme Court Strikes Down IEEPA Tariffs — Complete India Impact Analysis

⚖️ 1. U.S. Supreme Court Verdict of February 21, 2026

The Supreme Court’s decision in the consolidated cases Learning Resources and V.O.S. Selections marks a historic limitation on presidential trade powers. The majority opinion, authored by Chief Justice John Roberts, held that the International Emergency Economic Powers Act (IEEPA) – a 1977 law designed to address national emergencies – does not grant the president authority to impose tariffs on a broad, country-wide basis. The Court emphasized that tariff-setting is a core legislative function under Article I, Section 8 of the U.S. Constitution, and that Congress does not “hide elephants in mouseholes” – meaning it does not delegate such immense power through ambiguous language.

The ruling invalidated the 25% reciprocal tariffs that had been imposed on India and many other nations starting in 2025, as well as an additional 25% penalty tied to India’s imports of Russian oil. However, the Court explicitly allowed sector-specific tariffs under other statutes – such as Section 232 (steel and aluminium) and Section 301 (China) – to remain in place. This means that while the broad‑based tariffs are gone, Indian steel and aluminium exports still face 50% duties, and auto components remain subject to 25% tariffs.

The dissenting opinion, authored by Justice Alito and joined by Thomas and Kavanaugh, argued that past presidents have used IEEPA for economic measures and that the court should defer to the executive in foreign affairs. Nonetheless, the majority’s strict reading of the statute stands as a major check on executive power.

📜 2. President Trump’s Response: 15% Temporary Import Surcharge

Just hours after the Supreme Court’s ruling, President Trump issued a proclamation imposing a 15% temporary import surcharge on goods from countries that had been subject to the now‑invalidated IEEPA tariffs. The proclamation cites Section 122 of the Trade Act of 1974 (19 U.S.C. §2132), which authorizes the president to impose a surcharge of up to 15% for up to 150 days to address “fundamental international payments problems.” The surcharge takes effect on February 24, 2026.

Key exemptions: The White House proclamation explicitly exempts several product categories to avoid disrupting domestic supply chains and to maintain ongoing negotiations. Exempted items include: pharmaceuticals and active pharmaceutical ingredients (APIs); certain electronics and semiconductors; passenger vehicles and auto parts; energy products (crude oil, natural gas); critical minerals and bullion; and a range of agricultural goods such as beef, pork, poultry, eggs, tomatoes, oranges, and soybeans. For India, this means that while engineering goods, textiles, gems, and many other sectors face the 15% surcharge, the critical pharma sector remains duty‑free.

The surcharge is set to expire in late July 2026 unless Congress votes to extend it. Legal experts, including Neal Katyal who argued the Supreme Court case, have questioned whether Section 122 legitimately applies to a situation arising from trade deficits rather than balance‑of‑payments crises, so further court challenges are likely.

📦 3. India’s Exports to the United States: January 2026 Data

According to data released by India’s Ministry of Commerce & Industry on February 16, 2026, merchandise exports to the US fell by a sharp 21.77% in January 2026 compared to the same month last year, dropping to $6.6 billion from $8.43 billion. This decline reflects the cumulative impact of the high tariffs that were in place before the interim deal and the Supreme Court verdict. However, cumulative exports from April 2025 to January 2026 still grew by 5.85% to $72.46 billion, indicating that the earlier months had stronger performance.

Monthly Exports to US (April 2025 – January 2026)

India’s overall trade deficit widened to $34.68 billion in January 2026, driven largely by a 350% surge in gold imports. Despite the export dip, the Commerce Ministry projects total exports (merchandise + services) to exceed $860 billion by the end of FY26, with services alone crossing $410 billion.

💊 4. Indian Pharmaceutical Sector: Exempt from Surcharge

The pharmaceutical sector, India’s crown jewel in exports to the US, remains entirely exempt from the new 15% surcharge. This exemption was confirmed in the White House proclamation and is consistent with the India-US interim trade deal announced on February 6, 2026. India exported $10.52 billion worth of pharmaceuticals to the US in FY25, accounting for about 35% of the country’s total pharma exports. Major companies like Sun Pharma, Dr. Reddy’s, Lupin, and Cipla derive 30‑40% of their US revenue from generics.

However, a cloud of uncertainty remains: the US Department of Commerce launched a Section 232 investigation into pharmaceutical imports in April 2025, citing national security concerns. The investigation concluded in December 2025, but a final decision is still pending. If the probe determines that imports threaten US security, the president could impose tariffs of up to 25% on pharma products. Industry experts believe Indian generics are unlikely to be targeted because they do not pose a national security risk and actually help contain US healthcare costs. Nonetheless, companies are already diversifying by setting up manufacturing units in the US as a hedge.

🤝 5. India-US Interim Trade Deal: What Was Agreed?

On February 6, 2026, both governments announced a framework for a bilateral trade agreement. The deal was hailed as a breakthrough, but a revised White House fact sheet on February 10 introduced important changes. Key elements of the deal include:

• Tariff reductions: India agreed to eliminate or reduce tariffs on a wide range of US industrial goods and agricultural products, including red sorghum, tree nuts, fresh and processed fruit, soybean oil, wine, and spirits. Pulses, originally included, were removed in the revised version.
• Purchase commitment: The original language said India “committed” to buying over $500 billion in US energy, technology, and coal. The revision softened this to “intends to buy.”
• Digital services tax: Instead of removing its digital services taxes outright, India committed to negotiate a robust set of bilateral digital trade rules that address discriminatory practices.
• Section 232 exemptions: India will receive negotiated outcomes on generic pharmaceuticals and exemptions for aircraft parts, depending on the ongoing Section 232 probe.

The deal is expected to be signed in March 2026 and implemented from April. However, the new 15% surcharge may require renegotiation of some concessions, as both sides have the right to adjust commitments if the other party changes its tariff regime.

📊 6. Sector-wise Impact on Indian Exports

The 15% surcharge and existing sectoral duties affect Indian industries unevenly. The table below summarizes the status for major export sectors based on official trade data and the proclamation exemptions.

Textiles and garments, concentrated in Tiruppur, Ludhiana, and Surat, have been hit hardest. Many units operate on thin margins of 3‑5%, and the extra 15% duty could push them into losses. Industry bodies estimate up to 50,000 jobs at risk in the knitwear sector alone. Gems and jewellery exporters in Surat and Mumbai face a 22.5% drop in January exports; the surcharge will further erode their competitiveness against rivals in Vietnam and Thailand, which have free trade agreements with the US. Engineering goods, while showing overall growth, still face the surcharge on many products, though auto components (passenger vehicles and parts) are exempt, providing some relief to companies like Bharat Forge and Motherson Sumi.

👷 7. Jobs, MSMEs, and Exporter Finances

The sharp decline in US-bound exports has already begun to affect employment in labour‑intensive sectors. According to the Federation of Indian Export Organisations (FIEO), textile and garment clusters have reported reduced working hours and temporary layoffs. The Tiruppur Exporters’ Association estimates that about 15% of units (around 500) may close if the 15% surcharge persists beyond six months.

MSME exporters are particularly vulnerable because they lack the financial buffers of large corporations. Export credit growth slowed to 2.5% in January 2026 from 8% a year earlier, according to Reserve Bank of India data. The government’s interest equalisation scheme (3‑5% interest subvention) has been extended until March 2026, but exporters say it is insufficient to offset the tariff hit. In Moradabad, famous for brass handicrafts, many small workshops have seen US orders cancel or delay, squeezing cash flows. The Export Credit Guarantee Corporation (ECGC) has reported an increase in claims from US-bound consignments.

📈 8. Stock Market Reaction: Sensex, Nifty, and Sectoral Moves

Indian equity markets have been sensitive to every twist in the US tariff saga. On February 3, 2026, when the interim trade deal was announced, the Sensex surged 2.54% – its best single-day gain in nine months. The Nifty Pharma index jumped 3.2% on confirmation of zero tariffs for medicines.

Following the Supreme Court verdict and the 15% surcharge announcement on February 21‑22, markets were volatile but showed clear sectoral rotation:

• Pharma stocks: Sun Pharma (+1.1%), Dr. Reddy’s (+0.9%) – resilient due to exemption.
• Metal stocks: Tata Steel (-2.8%), Hindalco (-3.1%) – under pressure as steel tariffs remain.
• Textile stocks: Welspun India (-4.5%), Trident (-3.8%) – hit by surcharge.
• IT stocks: Infosys (+0.8%), TCS (+0.6%) – largely unaffected by tariffs.

Foreign institutional investors (FIIs) pulled out $1.2 billion in the week ending February 21, reflecting uncertainty. However, domestic institutional investors (DIIs) remained net buyers, providing some support.

🔮 9. Outlook and Strategic Recommendations

The 15% surcharge, while lower than the previous 25‑50% rates, will remain in place for at least 150 days. Indian exporters must adapt quickly. Here are key recommendations:

• Diversify markets: Reduce dependence on the US by focusing on the EU, UAE, UK (with which India has FTAs), and ASEAN countries.
• Upgrade value chains: Textile exporters should move from low‑margin fabric to finished garments; engineering firms should develop high‑value components that face less competition.
• Explore US manufacturing: Pharma companies should consider joint ventures or contract manufacturing in the US to circumvent any future Section 232 tariffs.
• Leverage government schemes: Use the interest subvention scheme, ECGC cover, and market access initiatives from the Commerce Ministry.
• Engage in policy advocacy: Industry bodies must continue lobbying both Indian and US officials for a swift finalisation of the trade deal.

📌 10. Conclusion

The Supreme Court’s February 21, 2026, ruling is a landmark victory for the separation of powers, reining in executive overreach in trade policy. President Trump’s quick pivot to Section 122 shows his determination to maintain tariff pressure, but the 15% rate is a significant reduction from the 25‑50% that prevailed earlier. For India, the pharma sector’s exemption protects its most valuable export, while textiles and gems face headwinds. The interim trade deal provides a pathway to normalisation, but its softened language and the new surcharge mean negotiations are far from over. As Indian officials head to Washington from February 23‑26, the goal must be to lock in zero tariffs for pharma and reduce the surcharge for other sectors. cmaknowledge.in will continue to track these developments.