New U.S. Tariff Threat Casts Shadow Over India–U.S. Trade Talks

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A fresh trade dispute is brewing between India and the United States after Washington proposed imposing additional tariffs of up to 12.5% on imports from India and dozens of other economies under a Section 301 investigation linked to forced labor concerns, raising new questions about the future of ongoing India–U.S. trade negotiations.

The proposed tariffs, announced by the Office of the United States Trade Representative (USTR), stem from investigations launched in March covering 60 economies over their policies concerning imports allegedly linked to forced labor and industrial overcapacity.

While the proposed measures are still under consultation and have not been finalized, trade experts say they could significantly complicate efforts by New Delhi and Washington to conclude a long-awaited bilateral trade framework agreement.

The Indian government, however, has sought to reassure stakeholders, saying it remains actively engaged with the United States both in the Section 301 proceedings and in parallel discussions aimed at finalizing a broader trade framework announced earlier this year.

Tariffs Yet to Be Finalized

According to the USTR findings, additional tariffs of up to 12.5% could be imposed on imports from 60 economies, including India. Most products would be covered, although goods already subject to Section 232 tariffs and certain other categories are exempt. A separate mechanism has been proposed for textiles and apparel that could allow specified import volumes from selected countries to enter the U.S. market at lower tariff rates.

The proposal has now entered a public consultation phase. Requests to participate in hearings must be submitted by June 22, while written comments are due by July 6. Public hearings are scheduled for July 7.

Trade observers expect the USTR to make a final determination later this month or in July, potentially before temporary 10% Section 122 tariffs expire on July 24. Once approved, the new duties could take effect almost immediately.

India Not Accused of Using Forced Labor

A key aspect of the investigation is that it does not accuse Indian exporters of using forced labor in the production of goods shipped to the United States.

Instead, the U.S. investigation examines whether countries have adopted sufficient measures to restrict imports of products allegedly made with forced labor in third countries. In other words, the focus is on the import policies of partner countries rather than on their own exports.

That distinction has become central to criticism from Indian trade analysts.

The Global Trade Research Initiative (GTRI), a New Delhi-based think tank, argues that the USTR has stretched the scope of Section 301 beyond its traditional purpose. Section 301 has historically been used to address market-access barriers faced by American companies abroad, rather than to evaluate how countries regulate imports from other trading partners.

“The current investigation exceeds the scope of Section 301,” said GTRI Founder Ajay Srivastava. “The United States is attempting to impose its preferred import-control framework on other countries through unilateral trade measures.”

GTRI contends that India should challenge the legal basis of the proposed tariffs and argue that such measures fall outside the intended mandate of the U.S. trade law.

The think tank also noted that concerns regarding forced labor are often linked to specific products or supply chains, particularly those connected to China, rather than entire national economies. Imposing broad country-wide tariffs, it argued, risks penalizing sectors unrelated to the underlying concerns.

Pressure Point in Trade Negotiations

Beyond the legal debate, the proposed tariffs have added a geopolitical dimension to ongoing India–U.S. economic engagement.

India and the United States are currently negotiating a framework agreement aimed at expanding bilateral trade and resolving longstanding market-access issues. The initiative was announced during high-level discussions earlier this year and has been viewed as a stepping stone toward a broader trade partnership.

However, GTRI believes the latest Section 301 action could be part of a wider U.S. strategy to gain leverage in those negotiations.

The report warns that India could face additional investigations in areas such as industrial overcapacity and advises New Delhi to treat the tariff proceedings and bilateral trade talks as separate tracks.

According to GTRI, India should be prepared to contest Section 301 actions rather than make trade concessions under pressure.

The think tank also argues that the strategic rationale behind the proposed Bilateral Trade Agreement (BTA) has weakened following a February ruling by the U.S. Supreme Court that struck down Washington’s reciprocal tariff framework. In its assessment, India is now being asked to make substantial market-opening commitments while receiving fewer tangible benefits in return.

As a result, GTRI has urged policymakers to reassess the costs and benefits of the negotiations and consider alternative approaches if the agreement no longer serves India’s interests.

Government Maintains Engagement

The Ministry of Commerce and Industry struck a more measured tone, emphasizing that the USTR proposals remain preliminary and subject to review after consultations.

In a statement issued on Wednesday, the ministry said India remains engaged with the United States as part of the Section 301 proceedings and will participate in the consultation process.

The government also confirmed that discussions on the broader trade framework are continuing in parallel.

“India remains engaged with the U.S. on the matter as a part of Section 301 proceedings. India is also parallelly engaged with the U.S. for finalization of a framework agreement,” the ministry said.

The statement referred to the trade framework announced on February 2 and subsequent commitments reflected in the India–U.S. joint statement issued on February 7.

Uncertainty Ahead

The proposed tariffs arrive at a sensitive moment in India–U.S. relations. Bilateral trade between the two countries has expanded significantly over the past decade, while strategic cooperation has deepened across technology, defense, energy and supply-chain resilience.

Yet trade disputes have periodically resurfaced, with disagreements ranging from digital trade and market access to tariffs and subsidy policies.

Whether the latest Section 301 action evolves into a major trade confrontation or remains a negotiating tool may depend on the outcome of the consultation process and the broader trajectory of India–U.S. trade talks over the coming weeks.

For now, businesses on both sides are watching closely as Washington weighs a decision that could reshape the commercial landscape between two of the world’s largest economies.