Why US 10% Forced Labour Tariffs On India Matter And What's Next

The United States has imposed a fresh 10% tariff on most goods imported from India under Section 301 of its Trade Act, saying the move is aimed at encouraging countries to strengthen restrictions on imports produced using forced labour.

While India avoided a steeper 12.5% levy after amending its foreign trade policy earlier this month, New Delhi continues to dispute both the basis of the investigation and the tariff itself.

Let's dive in to understand why the US has taken this step and what it means for India-US bilateral trade.

What Is A Forced-Labour Tariff?

The latest US tariff is not linked to the way goods are produced in India. Instead, it stems from Washington's view that many trading partners — including India until recently — did not have adequate laws preventing the import of products made using forced labour elsewhere in the world.

According to the Office of the US Trade Representative (USTR), the new duties are intended to push countries to adopt and effectively enforce prohibitions on imports produced with forced labour.

The agency said the action follows investigations into 60 economies and is meant to address what it describes as both a human rights concern and an unfair trade practice.

"President Trump recognises that decades of moral suasion have not eradicated forced labour from global supply chains. The United States has had a forced labour import ban for nearly a century, and rigorously enforces it; it’s well past time for our trading partners to do the same," USTR Ambassador Jamieson Greer said while explaining the decision.

Why Has US Targeted India?

India was among 60 economies investigated by the USTR over whether they prohibit and effectively enforce restrictions on imports made using forced labour.

The investigation concluded that the absence — or inadequate enforcement — of such measures distorted trade and warranted action under Section 301.

Initially, the USTR proposed a 12.5% tariff on Indian goods. However, before the final decision, India amended its Foreign Trade Policy to prohibit imports produced using forced labour.

The USTR acknowledged this policy change and reduced India's tariff to 10%, placing it alongside 16 other economies, including Canada, Bangladesh, Pakistan and the United Kingdom.

Countries that have not introduced comparable measures continue to face a 12.5% tariff.

The USTR maintained that countries making progress on forced-labour import prohibitions deserved a lower tariff while continuing to encourage stronger enforcement.

What Does Section 301 Allow?

Section 301 of the US Trade Act, 1974, authorises the USTR to investigate foreign government policies that it considers unreasonable, discriminatory or harmful to US commerce.

If such practices are found, the US can impose trade remedies, including additional tariffs.

The USTR investigations into the 60 economies began in March this year following directions from President Donald Trump. The agency held public hearings, received thousands of public comments and consulted with dozens of governments before determining that the failure to prohibit imports made using forced labour was actionable under Section 301.

The latest tariffs replace the temporary 10% global tariff imposed under Section 122 after the US Supreme Court curtailed the administration's earlier reciprocal tariff regime, according to a report by the the Global Trade Research Initiative (GTRI).

Which Sectors Could Be Affected?

The biggest impact will be on manufactured exports that are not already covered by separate US tariff measures.

Around 70% of India's exports to the US — including engineering goods, textiles and garments, chemicals, machinery, plastics, leather products, gems and jewellery, furniture and several other manufactured items — will now attract the normal Most-Favoured-Nation (MFN) tariff plus the additional 10% Section 301 duty, as per GTRI.

Products already covered under Section 232, such as steel, aluminium, copper, automobiles and certain auto components, will continue to face existing tariffs of 25% or 50%, with no change under the new announcement, the GTRI report said.

Some categories, including selected raw materials, medical products, humanitarian goods and items where tariffs could disrupt US supply chains, have been exempted from the latest action, according to the USTR.

Why Did India Change Its Rules?

India amended its Foreign Trade Policy through a Directorate General of Foreign Trade (DGFT) notification issued in July, creating a legal framework to prohibit imports of goods produced wholly or partly through forced labour.

The framework itself does not immediately ban products from any country. Instead, it empowers the government to identify such goods through future investigations and notifications.

The policy adopts the International Labour Organization's (ILO) definition of forced labour and aligns India's regulatory framework with evolving global trade standards.

The USTR cited this policy change while reducing India's proposed tariff from 12.5% to 10% in its final determination.

How Did India Respond To Labour Tariffs?

India has continued to reject the rationale behind the USTR investigation. During public hearings, Commerce Ministry Joint Secretary Brij Mohan Mishra argued that India already treats the elimination of forced labour as a constitutional obligation.

Mishra added that the USTR had failed to establish how India's policy framework harmed US commerce, as per PTI.

India also maintained that the investigation relied on broad assumptions rather than economy-specific evidence and urged Washington to address any trade concerns through bilateral negotiations instead of unilateral tariff measures.

Industry bodies FICCI and CII echoed those concerns, warning that higher tariffs would increase costs for Indian exporters as well as US manufacturers, retailers and consumers while doing little to identify goods actually produced using forced labour.

"The 10% US tariff on Indian exports under the forced-labour investigation lacks a credible factual basis. The United States has not produced evidence that India imports goods made with forced labour," GTRI said.

"The tariff appears to serve primarily as a mechanism to preserve the Trump administration's tariff wall after the expiry of the temporary Section 122 tariffs, rather than as a targeted response to a proven forced-labour problem involving India," it added.

What Does It Mean For India-US Trade Deal?

The tariff announcement comes at a delicate stage in India-US trade negotiations, with both countries working towards an interim agreement as the first phase of a broader bilateral trade pact.

While the reduction from the proposed 12.5% to 10% seems to be a positive signal, it does not remove the new duty altogether.

According to GTRI, the Trump administration is expected to conclude another Section 301 investigation into excess manufacturing capacity, which could result in additional tariffs on a wider range of imports.

Geopolitical issues — including India's purchases of Russian oil — could also emerge as future grounds for further trade action.

What Happens Next?

The new Section 301 tariffs came into effect on July 24, replacing the temporary global tariff imposed under Section 122. The USTR says the objective is to encourage trading partners to adopt and effectively enforce bans on imports made using forced labour, while exempting certain products where tariffs could disrupt US supply chains or domestic production.

For India, the immediate outcome is a lower tariff than originally proposed, reflecting Washington's acknowledgement of New Delhi's policy changes. Nevertheless, the two sides remain divided over the legal and factual basis of the investigation.

With bilateral trade negotiations continuing and further US trade investigations underway, the issue of forced-labour compliance is likely to remain part of the broader economic relationship between the two countries for the foreseeable future.