Can you check like this

function Login({}) {
  const [email, setEmail] = useState("");
  const [password, setPassword] = useState("");
  const [error, setError] = useState(null);
  useEffect(() => {
    if (localStorage.getItem("user-info")) {
    }
  }, []);
  async function login() {
   setError(false);
    console.warn(email, password);
    let item = { email, password };
    try {
        let result = await fetch(
          "https://login-test.repl.co/auth/login",
          {
        method: "POST",
        headers: {
          "Content-Type": "application/json",
          Accept: "application/json",
        },
        body: JSON.stringify(item),
          }
        );
        result = await result.json();
        localStorage.setItem("user-info", JSON.stringify(result));

    } catch(error) {
        setError(true);
    }
  }
  return (
    <div className="bg-white w-full rounded-lg shadow p-2 h-screen flex justify-center items-center relative">
      <div className="w-full ">
        <input
          id="inputEmail"
          onChange={(e) => setEmail(e.target.value)}
          type="email"
        />
        <input
          id="inputPassword"
          onChange={(e) => setPassword(e.target.value)}
          type="password"
        />
        <button type="submit" onClick={login}>
          Login
        </button>
        <div className={`${!error ? "hidden" : ""}`}>
          INCORRECT PASSWORD OR EMAIL
        </div>
      </div>
    </div>
  );
}
export default Login;

You can achieve this by checking the status code.

If you are getting status of 200 then you can update the state as follows:

if(result.status === 200)
{
    setEmail("Email Already Exists");
}

You can get more status codes and you can set the errors as you like.