Since 2025, the United States’ trade policy has been marked by tariffs imposed under the authority of the International Emergency Economic Powers Act (IEEPA). These tariffs, aimed at protecting domestic industries and boosting jobs, have sparked widespread economic and legal controversy. The complex effects on the US and global economies continue to unfold amid ongoing court challenges and diplomatic tensions.
Historical Context of US Trade Policy
The United States has traditionally supported free trade since World War II. It helped establish the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO). These institutions aimed to reduce trade barriers globally. The US also signed multiple Free Trade Agreements to promote open markets.
Shift Towards Protectionism
Recent US administrations have shifted towards protectionist policies. Tariffs on imports became central to this approach. The goal was to protect specific industries and increase domestic production. However, these tariffs raised costs for consumers and businesses. Economic growth slowed as trade volumes declined.
Economic Impact of Tariffs
Tariffs disrupted global supply chains and market stability. Inflation increased due to higher import prices. US businesses faced uncertainty affecting investment decisions. The overall economic effect was negative, with slower growth and reduced competitiveness.
Legal Challenges to Tariff Authority
The Trump administration’s use of IEEPA to impose tariffs faced legal scrutiny. Critics argued that tariff imposition is a congressional power, not an executive one. In a 7-4 ruling, the Federal Circuit Court declared the tariffs exceeded presidential authority under IEEPA. The court emphasised that setting tariffs is a core Congressional function.
Supreme Court Intervention
The administration appealed to the US Supreme Court to overturn the ruling. The case raises fundamental constitutional questions about separation of powers. The Supreme Court’s decision remains uncertain, with potential political and legal implications.
Global Diplomatic and Trade Reactions
The tariffs strained US relations with key partners like India. Experts criticised the policy as damaging longstanding diplomatic ties. Countries are increasingly relying on bilateral trade agreements to counteract tariff uncertainties. India, for example, is diversifying its trade partnerships to strengthen negotiating power.
Impact on the Global Trading System
The use of tariffs has weakened the rules-based global trade system. The UN Conference on Trade and Development (UNCTAD) reports rising protectionism worldwide. Many nations now pursue tariffs to achieve domestic policy goals, increasing trade tensions and instability.
Economic and Strategic Analysis
Economists warn that tariff-driven uncertainty harms markets and business confidence. Rising costs from tariffs contribute to inflationary pressures. Strategists argue that such policies risk long-term economic damage and diplomatic isolation. The full consequences will depend on future legal rulings and policy decisions.
Questions for UPSC:
- Critically analyse the impact of protectionist trade policies on global economic growth and international relations with suitable examples.
- Explain the constitutional division of powers in the United States regarding trade policy and tariff imposition. How does this compare with other federal systems?
- What are the effects of tariff wars on emerging economies? Discuss with reference to India’s trade diversification strategy.
- Underline the challenges faced by the rules-based global trading system in the 21st century and suggest measures to strengthen it.
