Assess the impact of U.S. tariff policy volatility (2025-26) on India's export competitiveness and the global trading system governed by the WTO.

Q. Assess the impact of U.S. tariff policy volatility (2025-26) on India's export competitiveness and the global trading system governed by the WTO. (15 marks, 250-350 words)

U.S. trade policy swung sharply between April 2025, when near-universal "reciprocal" tariffs were imposed under emergency powers, and February 2026, when the U.S. Supreme Court struck them down in Learning Resources, Inc. v. Trump, replacing them with a flat 10% tariff [1]. For India and for the WTO, the unpredictability has proved as damaging as the tariff levels themselves.

Adverse effects on India's export competitiveness - Demand compression: the IMF projects India's growth moderating from 6.6% (2025) to 6.2% (2026) largely owing to higher U.S. tariffs, with shipments to the U.S. losing momentum [4]. - Labour-intensive sectors — textiles, gems and jewellery, marine products — face the sharpest margin squeeze, having little pricing power to absorb duties. - Contract uncertainty: the replacement 10% duty rests on a time-limited statutory authority, deterring long-horizon buyer contracts and investment [1][3].

Cushioning factors - The effective U.S. tariff rate fell from 14% to about 9.9% after the ruling, with pharmaceuticals and semiconductor-related goods exempted — protecting India's largest merchandise export line [3]. - Services and IT exports lie outside the tariff net; domestic GST reform partly offset the shock [4]. - The IMF finds deeper integration with alternative partners the least distortionary response — validating India's FTA push over retaliation [5].

Stress on the WTO order - The WTO projected world merchandise trade volume falling 0.2% in 2025, with North American exports down 12.6% [2]. - Tariffs set unilaterally under emergency powers bypass MFN and bound-tariff commitments, in a system whose Appellate Body is already paralysed. - The judgment restored tariff-setting to the legislature [1] — a domestic constitutional correction, not a multilateral one.

The episode confirms that rules, not rates, anchor trade confidence. India's durable response lies in export diversification, FTA deepening, PLI-backed value addition and coalition-building for WTO dispute-settlement reform — converting a volatile external environment into an opportunity for resilient, rules-based integration.

(~310 words)

Sources: 1. Supreme Court Rules Against Tariffs Imposed Under IEEPA (CRS Legal Sidebar LSB11398, Congress.gov) — Feb 2026 ruling, IEEPA held not to authorise tariffs, tariff power vests in Congress 2. WTO, "Temporary tariff pause mitigates trade contraction, but strong downside risks persist" (16 April 2025) — world merchandise trade volume −0.2% in 2025; North American exports −12.6% 3. OECD Economic Outlook, Interim Report March 2026 — Recent Developments — effective U.S. tariff rate down from 14% to ~9.9%; new 10% across-the-board tariff; pharma and semiconductor exemptions 4. IMF, Regional Economic Outlook: Asia and Pacific, October 2025 — India's growth 6.6% (2025) moderating to 6.2% (2026) on higher tariffs; GST reform offset; Asian shipments to U.S. slowing 5. IMF Working Paper WP/25/147, "Trade Partners' Responses to US Tariffs" (18 July 2025) — retaliation and subsidies distortionary; deeper integration with other partners the welfare-superior response