The United States on Thursday imposed a 10% tariff on India and more than a dozen other countries following a months-long investigation into forced labour practices, with New Delhi securing a lower rate than the 12.5% tariff originally proposed under Section 301 of the Trade Act of 1974.
Key Highlights
- US imposes 10% tariff on India over forced labour concerns, lower than the proposed 12.5%.
- India faces two Section 301 probes, unlike Pakistan and Sri Lanka, which face only one.
The 10% tariff places India on par with Pakistan, Sri Lanka, and Bangladesh, along with several Latin American and Asian economies. In all, Washington imposed tariffs on 60 countries accounting for more than 99% of US imports, for failing to prohibit and effectively enforce restrictions on the import of goods made with forced labour. The new tariffs replace the temporary 10% global tariff announced in February, which expired this week.
"Today's action will begin to correct what is both a human rights abuse and distortive trade practice to improve the welfare of workers everywhere. I am encouraged by the trading partners who have moved quickly to adopt forced labour import prohibitions, and look forward to ensuring their effective enforcement," said US Trade Representative Jamieson Greer, while announcing the tariffs.
Background: Two Section 301 Investigations
The action follows two Section 301 investigations launched by the Trump administration in March. The provision allows the US to impose retaliatory trade measures against countries found engaging in unfair or discriminatory practices. Unlike Section 122 tariffs, which have been in force since February, Section 301 tariffs carry no rate ceiling or expiry date but require a formal investigation before being imposed. India is also facing a separate Section 301 investigation into alleged excess manufacturing capacity, which remains underway.
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India Secures a Lower Rate Than Initially Proposed
Earlier, the Office of the US Trade Representative had indicated that India could face a 12.5% tariff under the forced labour investigation, placing it among countries Washington believed had not done enough to curb imports of goods produced through forced labour. During the public consultation process, Indian industry bodies and government officials defended India's record, citing, among other measures, constitutional provisions prohibiting forced labour.
The tariff announcement comes even as India and the United States continue negotiations on a broader trade agreement. In February, the two countries agreed to a framework under which tariffs on Indian exports would be reduced from 50% — including a 25% penalty linked to India's purchase of Russian oil — to 18%. In return, India proposed purchasing $500 billion worth of US goods over five years and expanding market access for American exports, including selected agricultural products.
Commerce Minister Piyush Goyal had recently said India accepted the proposed 18% tariff because it would provide a competitive advantage over neighbouring countries and comparable Southeast Asian economies. However, the US Supreme Court subsequently struck down the Trump administration's global reciprocal tariffs, creating uncertainty over how the agreed 18% tariff would be implemented.
Another concern for New Delhi is that India is subject to two separate Section 301 investigations, unlike competitors such as Pakistan and Sri Lanka, which face only the forced labour probe. If those countries ultimately attract lower overall tariff rates, India could lose its competitive advantage in exports to the US market.
"I think the two sides are very close to agreement on the substance of the Interim Agreement, but they may be stuck on India's insistence that it have clarity first that it will receive a preferential tariff compared to other countries. Some of those, such as Pakistan, Sri Lanka, and the Philippines, are not subject to the excess capacity 301, so it is hard to see how they might have a higher aggregate tariff than India, at least until new 301 cases that include them are initiated," said Mark Linscott, Senior Adviser, Asia Group, and former Assistant US Trade Representative for South and Central Asia.
