Context

• In light of rising protectionist trade policies, the US is expanding its tariff regime significantly. Even as multiple trade partners rush to negotiate deals before the August 1 deadline, an overlooked legal development involving the International Emergency Economic Powers Act (IEEPA) has injected new uncertainty. This editorial explores the evolving tariff landscape and how judicial rulings could disrupt global trade arrangements.

Background

• USA has escalated tariffs significantly since May 2025, with expectations that average tariff rates will move from 13–14% to 18– 20%.  
• Focus was initially on ASEAN countries (Vietnam, Indonesia), but surprisingly included Brazil, Canada, Mexico, and imposed a 50% tariff on copper.  
• Ongoing trade negotiations are in process with India, EU, Korea, and others before the August 1 deadline. 
• Japan’s recent deal suggests final tariffs might be half the threatened levels.

International Emergency Economic Powers Act (IEEPA), 1977 

• Enacted on: 28 October 1977 (USA). 
• Purpose: Grants the U.S. President authority to regulate financial transactions during a declared national emergency arising from threats originating outside the U.S.
• Powers under IEEPA: Restrict transactions and freeze assets.
• Seize property tied to foreign threats or actual attacks.  
• Alter U.S. economic policy to address unusual or extraordinary threats to national security, foreign policy, or economy.
• Legal Framework: Governed by the National Emergencies Act (NEA).
• Emergencies declared under IEEPA must be renewed annually
• Historical Context: IEEPA replaced powers from the Trading with the Enemy Act (1917), which allowed wartime economic controls.

Challenges Highlighted 

• Legal Uncertainty Surrounding IEEPA Based Tariffs: The US Court of International Trade has ruled that the imposition of tariffs under the International Emergency Economic Powers Act (IEEPA) may exceed the legal mandate. This creates legal fragility in the foundation of many current and upcoming trade deals.  
• Fragmented Tariff Architecture and Policy Volatility: The use of multiple legal instruments (IEEPA, Section 301, 232, 122, and 338) has created a fragmented and complex trade policy landscape. The lack of a unified, rules-based structure increases unpredictability for trading partners
• Burden on Trade Negotiations and Renegotiations: Should IEEPA-based tariffs be invalidated, trade agreements concluded under its framework, including those with India and the EU, may require complete renegotiation, prolonging diplomatic uncertainty.
• Escalation of Sector-Specific Tariffs: Rapid expansion of tariffs to sensitive sectors like semiconductors, pharmaceuticals, and autos risks disrupting global value chains and raises compliance costs for partner economies.

Way Forward

• Adopt Legally Durable Tariff Mechanisms: The US administration should proactively shift to trade actions rooted in more stable legal provisions (e.g., Sections 301 and 232), which are less vulnerable to judicial reversal.
• Enhance Predictability Through Transparent Timelines: Establishing clearer roadmaps for tariff actions and legal reviews will help reduce market uncertainty and restore faith in negotiated outcomes.  
• Institutionalize Safeguards in Trade Agreements: Countries like India should push for clauses that safeguard negotiated tariff terms against unilateral reversals arising from internal legal rulings in the US.  
• Diversify Trade Partnerships and Supply Chains: In light of recurring protectionist shocks, India and other economies must accelerate supply chain diversification and deepen regional trade architecture to reduce overdependence on the US market.