India-US trade deal: Even as India and the US negotiate an interim trade deal, the Office of the US Trade Representative has proposed an additional 12.5% tariff on India and several other economies under Section 301 of the Trade Act of 1974. The stated ground is failure to prohibit and enforce restrictions on imports made with forced labour in third countries. The duty will not take effect immediately. Written comments are due by July 6, and USTR hearings are scheduled for July 7. India has said the proposal is not final and that it remains engaged with Washington under the Section 301 process. That response is sensible as far as it goes. But engagement should not be confused with acquiescence.
The timing is significant. Washington had only recently held out the prospect of tariff relief if New Delhi concluded an interim deal before July 24, when the temporary 10% surcharge imposed under Section 122 is due to expire. The latest proposal strengthens a familiar doubt. Is this a routine proceeding under American trade law, or a bargaining device meant to extract deeper concessions from India? More importantly, should India accept short-term relief at the cost of a trade agreement that narrows its policy space?
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India-US trade deal under tariff pressure
The tariff threat has come when negotiators from India and the US are discussing market access, tariff reductions and sector-specific concessions. The USTR has justified the move on forced-labour enforcement. But the larger context is hard to ignore. The US is using tariffs to improve its bargaining position.
There is another reason to treat the move with caution. The Section 301 proposal follows the Trump administration’s attempt to rebuild tariff powers after emergency tariffs were struck down by the US Supreme Court in February. That gives the forced-labour proceeding a second function: it offers a legal route to preserve tariff pressure where earlier instruments have been weakened.
The proposed action covers 60 Section 301 investigations. USTR says 54 economies, including India, have failed to impose and effectively enforce a prohibition on imports produced with forced labour. Six others, including Canada, Mexico, Pakistan and the European Union, are treated differently because USTR says they have some form of partial compliance or enforcement mechanism.
For India, the issue is not an allegation that Indian exporters use forced labour. It is about whether India prevents imports made with forced labour in third countries. In effect, Washington is seeking to impose an extraterritorial compliance obligation on trading partners.
The cotton supply chain is one area to watch. The USTR has identified India as an intermediary in cotton supply chains linked to Chinese forced-labour inputs. That gives the dispute a sectoral edge and could expose textiles and apparel to closer scrutiny.
That is the point New Delhi must not miss. The Section 301 process should not be treated as a narrow legal proceeding detached from the trade talks. Nor should it be allowed to become the price of an interim agreement.
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Section 301 tariffs and India’s policy autonomy
Under the Trump administration, trade policy has become openly transactional. Older free trade negotiations were framed around market integration. The present American approach relies on tariff pressure, reciprocal trade balancing and economic security claims. Trade deficits, labour standards, subsidies and supply-chain risks are now bundled into one instrument.
India is exposed because the US is its largest export destination and accounts for a large share of outbound shipments. India also runs a sizeable goods trade surplus with the US. USTR puts the US goods deficit with India at $58.2 billion in 2025. That makes India a visible target in Washington’s effort to rebalance trade relationships.
The Section 301 route has been used aggressively before. China was the main target during Trump’s first term. India has also faced Section 301 actions earlier, including on digital taxation and market access. The instrument works as both a legal mechanism and a negotiating lever.
Ajay Srivastava of the Global Trade Research Initiative has argued that India must separate bilateral trade negotiations from Section 301 tariff threats and be ready to contest unilateral US actions rather than concede under pressure. That is the right test.
India cannot ignore the economic cost. Textiles, apparel, engineering goods and auto components depend heavily on US demand. Pharmaceuticals may be partly shielded if annex exemptions hold, but the sector still faces wider uncertainty from US trade and pricing policy. Even a temporary tariff escalation could hurt competitiveness when global demand is weak.
But conceding too much would carry a larger cost. It would tell Washington that tariff threats work. Once that lesson is learnt, it will not be used only once.
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US tariff threat and strategic ties
Both sides have reasons to avoid a rupture. India wants protection for labour-intensive exports and assurances against further tariff escalation. The US wants greater access for agricultural products, digital trade commitments and lower barriers for American companies. The interim deal, if concluded, will be a limited bargain, not a comprehensive free trade agreement.
This is precisely why India must keep the two tracks distinct. It can negotiate tariff reduction and market access. It can also review its import enforcement systems where reform is warranted. But it should not accept unilateral American determinations as the basis for concessions.
The larger lesson is clear. Countries no longer negotiate trade agreements in a neutral environment governed only by World Trade Organisation rules. Major economies now deploy tariffs, sanctions, export controls and regulatory standards as instruments of strategic influence.
That is no reason for India to give up policy autonomy. The US remains an important partner. It is also an unreliable trade actor. The immediate task is to protect exporters without signing away leverage. The longer-term task is to ensure that every concession made under tariff pressure is treated as a precedent. That is the real cost India must calculate.