New Trump tariff threat looms: Explain India’s strong stance on US Section 301 probe proposing 12.5% ​​tariff

The Donald Trump administration’s Section 301 investigation and the threat of new tariffs have added a layer of uncertainty for many countries including India.The US Trade Representative has pushed forward one of its investigations into America’s trading partners, even as the July 24 deadline to implement a temporary additional 10% tariff looms.Between Tuesday and Thursday, the US Trade Representative’s Office will hold public hearings on its investigation into alleged forced labor practices, covering 60 economies. As part of this investigation, it has proposed an additional 12.5% ​​tariff on imports from more than 50 countries, including India, due to what it claims is inadequate action against goods linked to forced labor – a claim that the Indian government has rejected.However, USTR has not yet released its preliminary findings in its separate investigation into alleged structural excess capacity across multiple sectors.Read also | The Indian economy has passed the test of war with Iran. Can the El Nino phenomenon spoil the party?According to policymakers and trade experts, the pace of the investigation suggests that the United States may replace the current 10% tariff, which remains in place until July 24, with the proposed tariff related to forced labor.

What is India’s position?

The Indian government has urged the Office of the United States Trade Representative (USTR) to withdraw its proposal to impose an additional 12.5% ​​tariff on Indian exports over allegations of forced labor. India has made the following points:

The Department of Trade and Industry confirmed in its report that the US Trade Representative failed to meet the legal requirements stipulated under Section 301 (d) of the US Trade Act.

It also said the proposal does not provide sufficient evidence to prove that the absence of an import ban distorts market conditions or harms the profitability of companies that comply with labor standards.The government also said that any findings by the USTR must be supported by country-specific evidence to have legal and factual credibility. The proposed action is based instead on isolated case studies and broad trading patterns rather than a specific assessment of India’s conditions, it said.Although India and the United States have continued discussions, including at the ministerial level, to finalize the framework for the first phase of their proposed trade agreement, the tariff structure needed to operationalize the agreement is unlikely to be settled before the Trump administration unveils the revised tariff regime.

India stresses that any agreement must maintain the tariff advantage over competing exporting countries such as China, Vietnam, Bangladesh and ASEAN countries.However, exporters may find some relief if the current 10% tariff is replaced by the proposed 12.5% ​​tax, as the measure will be applicable to most of India’s competing exporting countries across a wide range of product categories.According to the government’s submission, there is insufficient evidence to prove that the absence of a ban on forced labor imports in India gives the country an unfair competitive advantage at the expense of American industry.

It emphasized that data from major export sectors do not indicate any link between Indian exports to the United States and the use of forced labor inputs.Pointing to three examples cited in the USTR report, the government said the resolution failed to explain how India’s actions, policies or practices burden or restrict US trade. He noted that US tobacco imports increased from $225,000 in 2021 to $3.5 million, while imports from Malawi remained at zero, indicating no negative impact on US trade.The filing also highlighted that the US did not import any of the goods in question from Myanmar, while the US itself was among the few countries exporting that good to India.It also noted that US cotton imports rose from $213 million in 2021 to $392 million in 2025, even as imports from China declined during the same period.

Indian companies are opposed

Several Indian companies, including Reliance Industries, Alok Industries, Shahi Exports and a number of solar manufacturers, have also challenged the proposal, TOI reported.

They claim that the proposed tariffs effectively replace reciprocal tariffs introduced by Donald Trump, which were later struck down by the US Supreme Court.A number of exporters in Gujarat, including Parth Foods, Hanumant Foods, Maruti Exports and Rajdhani Dehydration, which supply dried onions and garlic to US buyers, have also opposed the proposal. They argued that imposing additional tariffs would increase costs for American consumers, including manufacturers of spice products.Read also | LPG imports rise by 145%: Gas purchases from US double – How much can it help India reduce its dependence on Gulf supplies?

Trade agreement between India and the United States

Meanwhile, India and the United States continue negotiations to finalize the first phase of the India-US bilateral trade agreement. Under the agreement announced in February, tariffs on Indian goods were reduced by 0.18%, but this was later reduced after the US Supreme Court ruled that reciprocal tariffs imposed by Trump were illegal. The Donald Trump administration immediately announced 10% global tariffs on its trading partners that are set to expire in the coming weeks.This has added a layer of uncertainty to the trade deal, and trade experts believe the Section 301 investigation launched on several countries is a pressure tactic by the United States to get trade deals on its terms.While admitting that the trade deal has almost been finalised, Commerce Minister Piyush Goyal said India will agree only if it gets a competitive advantage over its counterparts.