India and the US are racing to conclude a trade deal before the deadline reshapes bilateral commerce.
NEW DELHI: The United States imposed a temporary 10% global import surcharge on February 24, 2026, under Section 122 of the Trade Act of 1974. That authority expires on July 24, 2026. It cannot be unilaterally extended beyond 150 days. Negotiations between India and the US concluded in New Delhi on June 24 with both sides describing the deal as nearly done. Commerce Minister Piyush Goyal has said India will sign only when it has a guaranteed tariff advantage over regional competitors. That guarantee does not yet exist. Three scenarios follow from July 25 onward.
What Changed in February
The original trade framework, announced on February 7, 2026, was negotiated when India faced a 50% tariff under the International Emergency Economic Powers Act. An 18% reciprocal rate under the proposed Interim Agreement was a substantial concession by Washington, giving Indian exporters a clear price advantage over Vietnam and Bangladesh facing 20-25%.
On February 20, the US Supreme Court struck that architecture down. In a 6-3 ruling in Learning Resources v. Trump, the Court held that IEEPA does not authorise the President to impose tariffs, because tariffs are taxes and the Constitution vests taxing power in Congress. The administration replaced the invalidated duties with the current global 10% Section 122 surcharge, which applies uniformly to all countries. India’s competitive edge evaporated. The proposed 18% deal rate now makes Indian exports more expensive than those of competitors sitting at 10%.
Goyal has said publicly that India will not operationalise the agreement until Washington provides a legally defensible mechanism guaranteeing India lower tariffs than Vietnam and Bangladesh. US trade lawyers have not identified that mechanism. WTO rules prohibit unilaterally applying higher tariffs to specific competitors without a bilateral agreement and the Supreme Court ruling prevents emergency declarations from fabricating country-specific tiers.
Scenario A: Deal Before July 24
If an interim agreement is signed in time, the Section 122 surcharge on Indian goods is replaced by negotiated bilateral terms. An 18% reciprocal tariff applies across textiles, apparel, leather, chemicals and machinery. The US eliminates all reciprocal tariffs on generic pharmaceuticals, gems and diamonds and aircraft parts. India commits to purchasing $500 billion in US energy products, aircraft, high-technology goods and coking coal over five years and agrees to address import licensing barriers on US ICT goods and medical devices.
Crucially, concluding the deal shifts India into the Agreement on Reciprocal Trade framework, reducing its exposure under a parallel Section 301 forced labour investigation from 12.5% to 10%, with a possible full structural exemption still being negotiated.
Scenario B: No Deal, Section 122 Lapses
If talks stall, the surcharge expires and US tariffs on Indian goods revert to pre-existing Most Favoured Nation baselines, averaging 2.5% across merchandise. Indian exports become temporarily cheaper than under either the current surcharge or the proposed deal.
This window will be brief. On June 2, the US Trade Representative issued final determinations under a separate Section 301 forced labour investigation, concluding that India and 53 other nations failed to enforce prohibitions on forced labour imports. The proposed remedy is a permanent 12.5% tariff surcharge on all Indian exports, implementable without Congressional approval or a 150-day limit. Public hearings close in mid-July. The effective tariff wall facing India by August, without a deal, is MFN rates plus 12.5%, settling near 15%.
Scenario C: Executive Roll-Over
The administration could issue a fresh Section 122 proclamation on July 25, declaring a new payments emergency and starting a second 150-day clock. USTR Jamieson Greer suggested publicly on May 26 that the statute does not prohibit this. Legal analysts disagree. A stacked proclamation would immediately face constitutional challenge in the Court of International Trade, building on the May 7 CIT ruling that the current surcharge is unlawful. Customs would continue collecting duties under a likely administrative stay, but importers would file protests to preserve refund rights, creating legal overhang that complicates trade financing.
What the Sectors Stand to Lose or Gain
Pharmaceuticals carry the highest stakes. India exports $8.72 billion to $11.8 billion in generics annually to the US. The proposed deal reduces duties to 3% from a historic 12% baseline and grants expedited FDA mutual recognition for 250 active pharmaceutical ingredients. A no-deal outcome followed by 12.5% Section 301 tariffs would compress margins across companies supplying roughly 47% of US generic drug demand by volume.
Textiles and apparel, at $10.5 billion annually and 28% of India’s total textile exports, face a structural competitive question. The 18% deal rate gives India a 2-percentage-point advantage over Vietnam and Bangladesh if competitors remain at 20%. Without a deal and with Section 301 at 12.5%, Indian apparel faces roughly 20-23% effective duties, erasing that edge entirely and risking order cancellations to competitors.
Gems and diamonds, at $9.15 billion to $13.7 billion annually, currently face the 10% Section 122 surcharge. The proposed deal reduces this to 5% with streamlined Kimberley Process certification. Without a deal reversion to 1.8% MFN is temporarily better, but Section 301 exposure at 12.5% would hit Surat’s 1.7 million polishing workers particularly hard.
The Agricultural Fault Line
The final obstacle is domestic agriculture. India’s proposed tariff reductions on US soybean oil, feed grains and tree nuts have already pushed domestic soybean prices from ₹5,800 to ₹5,500-5,600 per quintal in Maharashtra, Madhya Pradesh and Rajasthan, below cost-recovery levels for farmers cultivating over 13 million hectares. The US is simultaneously demanding that India ease FSSAI certification requirements for GM crops. India has refused citing food safety law and political sensitivity in oilseed-growing states. This single issue is likely what Ambassador Sergio Gor described on June 30 as the remaining “1 percent” of the deal.
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