US imposes 10% temporary import surcharge under Section 122 of the Trade Act effective today, impacting India, EU, Canada, Mexico, Japan, UK, and other major trading partners. Legal updates, supply chain impacts, and economic risks explained here.
Image: created by Sora
On February 24, the White House begins enforcing a new 10% ad valorem import surcharge on most goods entering the United States. The measure was introduced under the presidential proclamation titled “Imposing a Temporary Import Surcharge to Address Fundamental International Payments Problems.”
The order relies on Section 122 of the Trade Act of 1974, a statute that allows the president to impose temporary import surcharges or quotas of up to 15% for 150 days to address serious balance-of-payments problems, which the proclamation claims exist at present.
What the 10% Surcharge Means
An ad valorem surcharge is calculated as a percentage of a product’s value. A 10% tariff imposed on a certain imported product means importers must pay an additional 10% of the declared value of covered goods at customs.
From a macroeconomic perspective, tariffs can bring various outcomes:
- Increase costs for importers and retailers, often passed on to consumers;
- Shift supply chains to alternative sources;
- Potentially reduce imports and trade deficits;
- Strengthen domestic producers in protected sectors.
However, tariffs can also provoke retaliatory measures, as it happened in 2025 in trade relations with China, disrupt global supply chains, and contribute to inflationary pressures. Policymakers view these measures as short-term tools to correct imbalances, but their broader effects are complex and far-reaching.
Which Goods and Countries Are Affected and What Is Exempt
The surcharge applies broadly to imports entering the United States but is not universal. Exemptions include:
- Goods already subject to tariffs under other statutes, including Section 232 (national security) or Section 301 (unfair trade practices);
- Products covered under specific trade agreements;
- Certain critical sectors, such as pharmaceuticals, energy products, and select strategic materials;
- Some agricultural goods and high-tech items.
Although the surcharge is global in nature, its practical impact varies by trading partner depending on the types of goods exported to the United States. The measure is temporary, up to 150 days unless modified, making it a short-term corrective tool rather than a permanent restructuring of trade. Nevertheless, the decision is highly-controversial, in particular, on legal grounds.
Legal Controversy in the U.S.: Supreme Court Decision and New Statutory Authority
The new tariff announcement comes in the wake of a major legal development. Just a few days ago, the Supreme Court of the United States ruled that the International Emergency Economic Powers Act (IEEPA) does not authorize the president to impose tariffs.
IEEPA allows regulation of transactions during a national emergency but does not explicitly mention tariffs. The Court emphasized:
- Article I of the Constitution grants Congress alone the power to “lay and collect Duties.”
- Delegations of tariff authority must be clear and explicit.
- Broad language like “regulate importation” does not automatically include the power to impose duties.
Before the ruling, IEEPA had been broadly used as a legal foundation for the President’s tariff actions, but the Court invalidated that interpretation.
In response, the administration shifted its legal basis. The new 10% surcharge relies on Section 122 of the Trade Act of 1974, which explicitly authorizes temporary import surcharges under defined limits. Unlike IEEPA, Section 122:
- Specifically references import surcharges;
- Caps them at 15%;
- Limits the duration to 150 days;
- Ties the measure to balance-of-payments concerns.
This statutory clarity places Section 122 on much firmer legal footing, although courts may still scrutinize the application if it is used expansively or outside the intended economic rationale.
International Reaction: EU Freezes Trade Deal Ratification and India Adopts Cautious Stance
The European Union has responded sharply. The EU has frozen ratification of a pending EU-US trade deal amid concerns over the new tariff regime. European lawmakers cite sudden shifts in U.S. legal authority, potential contradictions with previously negotiated trade terms and policy unpredictability undermining trust as main reasons for the freeze.
The European Parliament must approve major trade agreements, and the pause signals political frustration. EU officials have also called for clarity from Washington and warned that countermeasures remain possible if the tariffs are inconsistent with commitments. Other trading partners are closely monitoring developments, concerned that short-term surcharges could evolve into broader trade restrictions.
India’s Response
India has taken a measured and cautious diplomatic stance to the tariff shocks in February 2026. Following the Supreme Court ruling and the new temporary import surcharge, India postponed scheduled trade talks with the United States to reassess the implications for the interim trade agreement, which had reduced U.S. tariffs on Indian goods from roughly 50% to 18% and removed a 25% punitive duty on select products.
Officials emphasized the need to review legal and economic impacts before taking further action. India may rely on “modify commitments” clauses in the original trade agreement to adjust or renegotiate tariff obligations under the new U.S. surcharge.
Domestic political debate reinforces caution, as policymakers balance protecting exporters with maintaining strategic bilateral relations. Across all statements, India stresses the importance of predictable, legally grounded trade frameworks rather than responding hastily to sudden shifts in U.S. policy.
This approach reflects India’s intent to preserve long-term economic and strategic ties while navigating short-term uncertainty created by the new U.S. tariff measures.
Other Countries Affected by Trade Uncertainty
Beyond India, several other countries are experiencing a recalibration of tariffs due to inconsistencies between earlier agreements and the new temporary surcharge:
- Canada: Expected tariff reductions on machinery, automotive parts, and agricultural goods are delayed; the temporary surcharge now applies to many products.
- Mexico: USMCA-related adjustments are affected, with the 10–15% surcharge replacing some expected preferential duties.
- Japan: Industrial and technology goods that might have faced gradual reductions are now under the temporary surcharge.
- United Kingdom: Post-Brexit trade talks anticipated preferential duties that are now uncertain.
- Thailand: Agricultural and electronics exports may face the temporary surcharge despite previously negotiated preferences.
In general, countries that had planned or negotiated lower tariff levels now face the uniform temporary import surcharge on many goods, creating short-term operational uncertainty until new legal and trade frameworks are finalized.
Economic Policymakers Anxious About Uncertainty, Inflation Risks, and Supply Chain Disruption
Economists and trade analysts highlight several areas of concern caused by abrupt changes in tariff arrangements and U.S. internal inconsistency regarding trade measures authority:
1. Inflationary pressure
Tariffs raise import costs, often passed on to consumers.
2. Supply chain disruption
Companies may delay shipments, reroute sourcing, or accelerate imports before full enforcement. The situation is particularly complex for Indian exporters, now facing a temporary 15% U.S. tariff instead of the previously negotiated 18% rate. Businesses in Canada, Mexico, Japan, the U.K., and Thailand face similar disruptions, needing to adapt supply chains and pricing models quickly.
3. Retaliation risk
Trading partners could impose counter-tariffs, escalating trade tensions. Most partners have not imposed retaliatory measures yet as uncertainty persists, but may leverage clauses in the trade agreement to renegotiate commitments under the new U.S. surcharge regime.
4. Legal uncertainty
Because the measure follows a Supreme Court decision limiting executive tariff power, businesses face questions about duration, legitimacy, and potential litigation.
Markets generally react negatively to unpredictability. Even though Section 122 limits surcharges to 150 days, policymakers and businesses are watching to see whether the measure will be extended, modified, or replaced with other trade tools.
Some analysts argue the move strengthens U.S. negotiating leverage. Others warn it could weaken multilateral trade cooperation, disrupt markets, and strain alliances. For India and other trading partners, the combination of legal shifts, delayed agreements, and temporary surcharges creates both short-term operational challenges and uncertainty about future trade commitments.
What could happen next?
Several scenarios are possible:
- The surcharge may expire after 150 days without extension.
- It could be replaced with targeted tariffs under other statutes.
- Trading partners, including the EU, India, Canada, Mexico, Japan, the U.K., and Thailand, could seek renegotiation or implement countermeasures.
- Legal challenges may arise questioning the application of Section 122 in particular cases.
Much depends on whether the administration frames the measure as a temporary corrective tool or as leverage in broader trade negotiations.
Conclusion
The new 10% temporary import surcharge represents a policy shift grounded in a legal recalibration. After the Supreme Court ruled that IEEPA could not serve as a tariff authority, the White House relied on Section 122 of the Trade Act of 1974 — a statute explicitly allowing temporary surcharges under defined conditions.
While the measure is intended to address balance-of-payments concerns, it raises prices, operational uncertainty, legal questions, and geopolitical tension. The EU’s freeze on trade deal ratification, India’s cautious stance, and the broader effects on other partners such as Canada, Mexico, Japan, the U.K., and Thailand underscore the diplomatic ripple effects.
Ultimately, the situation highlights that modern trade policy is shaped not only by economics but also by constitutional law, statutory authority, and international trust. Businesses, governments, and policymakers now face a period of heightened uncertainty, requiring careful monitoring and agile responses in global trade relations.
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