By R. Suryamurthy
The United States has every sovereign right to shape its trade policy. It has every right to combat forced labour in global supply chains. Few countries, including India, would dispute the moral imperative of eliminating forced labour from international commerce. What deserves far greater scrutiny, however, is how Washington has chosen to pursue that objective.
By imposing permanent Section 301 tariffs on imports from 60 economies—including India—while simultaneously negotiating a Bilateral Trade Agreement (BTA) with New Delhi, the Trump administration has blurred the distinction between trade enforcement and trade coercion. The message is unmistakable: negotiations may continue, but tariffs will remain the principal instrument of leverage.
That should concern India—not because the additional 10% tariff is economically catastrophic, but because it fundamentally alters the character of the India-U.S. trade relationship. At first glance, India appears to have emerged relatively unscathed.
The Office of the U.S. Trade Representative (USTR) reduced the proposed additional tariff on Indian exports from 12.5% to 10% after New Delhi amended its Foreign Trade Policy to prohibit imports of goods produced through forced labour. The Ministry of Commerce rightly points out that this followed months of sustained engagement with Washington through written submissions, public hearings and bilateral consultations. Nearly 45% of India’s exports to the United States—including generic pharmaceuticals, smartphones, and products already covered under Section 232 tariffs such as steel, aluminium and auto parts—remain exempt from the new duty.
Compared with several competing economies facing higher tariffs, India has secured a relatively favourable position. That is the good news. The bad news is that India may be celebrating a tactical victory while overlooking a strategic defeat.
The reduction from 12.5% to 10% has dominated headlines. But the real story is not the tariff rate. It is the permanence of the instrument. The Section 301 duties have no sunset clause. They remain in force until the United States alone determines that compliance has been achieved. In other words, Washington acts simultaneously as investigator, prosecutor, judge and executioner.
That is not rules-based trade. It is rules written by one party and enforced at its discretion. This distinction matters because India and the United States are not adversaries locked in a trade war. They are strategic partners negotiating what has repeatedly been described as a landmark Bilateral Trade Agreement. Officials on both sides have suggested that negotiations are in their final stages, with only a handful of difficult issues—market access, agriculture, digital trade, investment, labour and environmental standards—remaining unresolved.
Trade agreements are supposed to reduce uncertainty. Yet, even as negotiations approach the finish line, Washington has chosen to institutionalise a new tariff regime. That raises an obvious question: What exactly is India negotiating?
If a country can comply with U.S. demands, amend its domestic laws, participate in investigations, cooperate throughout the process and still remain subject to permanent tariffs, what incentive exists to believe future commitments will produce different outcomes?
The contradiction is difficult to ignore. Washington argues that the tariffs respond to failures to prohibit imports made with forced labour. India responded precisely as requested. It amended its Foreign Trade Policy in June 2026, prohibiting the import of goods produced through forced or compulsory labour. The USTR itself acknowledged India’s policy response by moving it into the lower 10% tariff tier.
Yet the tariff remains. If compliance produces no immediate relief, then compliance was never the central objective. The tariff becomes leverage. This is precisely the conclusion reached by the Global Trade Research Initiative (GTRI). Its founder, Ajay Srivastava, argues that the United States has produced no credible evidence that India imports goods produced through forced labour. In his assessment, the new tariff is less about addressing a demonstrable labour-rights problem than preserving the Trump administration’s tariff architecture after the expiry of the temporary Section 122 duties.
Whether one fully accepts GTRI’s legal argument is almost beside the point. The larger trend is unmistakable. Section 301, once largely associated with intellectual property disputes and unfair commercial practices, has evolved into a far more expansive instrument of economic statecraft. Labour standards today. Excess manufacturing capacity tomorrow. Carbon emissions the day after. Digital taxation, industrial subsidies, strategic minerals or geopolitical alignment thereafter.
The scope is constantly expanding. Trade is increasingly becoming a vehicle for achieving foreign-policy objectives. That evolution presents India with a strategic dilemma. Should New Delhi continue accommodating unilateral U.S. demands in the hope of incremental tariff relief? Or should it insist that such issues be resolved within the framework of the BTA itself?
The answer should be obvious. India cannot allow the Bilateral Trade Agreement to become a document that merely coexists with unilateral American tariff actions. The purpose of a trade agreement is not simply to increase bilateral commerce. It is to create predictability, establish dispute-resolution mechanisms and replace arbitrary executive action with mutually agreed rules. If unilateral Section 301 tariffs survive alongside the BTA, then the agreement risks becoming little more than a commercial facilitation pact operating under the constant shadow of Washington’s domestic trade laws.
That would fundamentally weaken its value. There is another concern that deserves equal attention. The forced-labour tariffs create a dangerous negotiating precedent. If Washington succeeds in extracting policy changes before concluding the BTA, future administrations may conclude that unilateral pressure is the most effective negotiating strategy with India. The issue may not be forced labour next time. It could be climate commitments, digital regulation, data governance, agricultural subsidies, pharmaceutical pricing, intellectual property, labour standards or even India’s geopolitical relationships.
Indeed, recent U.S. trade actions already suggest such a trajectory. Section 232 tariffs justified on national security grounds remain intact. Reciprocal tariffs have proliferated. Country-specific duties linked to strategic considerations have become increasingly common. Another Section 301 investigation into excess manufacturing capacity is already under way. Washington has shown that it is increasingly comfortable using tariffs as instruments of broader strategic policy rather than merely correcting commercial distortions.
India should pay attention. The challenge is not today’s 10% tariff. It is tomorrow’s justification. The Federation of Indian Export Organisations (FIEO) has understandably adopted a more optimistic reading. President S. C. Ralhan argues that India has retained a relative competitive advantage because rivals such as China, Thailand, Türkiye, Brazil and South Africa face the higher 12.5% tariff. That assessment is commercially sound. In sectors where sourcing decisions are driven by narrow cost differentials, even a 2.5 percentage-point advantage can shift procurement towards Indian suppliers.
But relative competitiveness should never be mistaken for strategic security. Businesses invest billions of dollars in supply chains spanning decades. Investors value certainty above temporary tariff advantages. Permanent policy uncertainty discourages investment, complicates sourcing decisions and raises financing costs irrespective of whether the tariff is 10% or 12.5%.
Equally troubling is the message this sends to other trading partners. If the world’s largest economy increasingly negotiates through unilateral tariffs while simultaneously pursuing bilateral trade agreements, the multilateral trading system centred on predictable rules and negotiated outcomes risks gradual erosion. Countries may increasingly conclude that domestic political leverage, rather than international trade law or the World Trade Organization, determines market access.
That would accelerate the fragmentation of global commerce into competing spheres of influence. India has invested decades positioning itself as a champion of a rules-based international trading order. It should not abandon that principle simply because it has secured a lower tariff than some competitors.
None of this suggests that India should walk away from the BTA. Quite the contrary. The strategic logic underpinning closer economic integration with the United States remains compelling. Bilateral trade is expanding rapidly. Cooperation in semiconductors, defence manufacturing, critical minerals, clean energy, artificial intelligence and digital technologies has never been deeper. A well-negotiated BTA can strengthen supply-chain resilience, diversify global manufacturing away from excessive dependence on China and unlock substantial opportunities for Indian exporters.
But precisely because the relationship is strategically important, India should negotiate from confidence rather than concession. The BTA should explicitly address the future application of unilateral trade measures. It should establish consultation mechanisms before tariffs are imposed, transparent compliance reviews, independent dispute-settlement processes and clearly defined pathways for the removal of Section 301 measures once agreed conditions are met. Otherwise, the agreement risks becoming vulnerable to repeated unilateral interventions from Washington.
India has already demonstrated that it is willing to strengthen labour standards and improve supply-chain governance. Those reforms are in India’s own long-term interest, irrespective of American pressure. But reforms undertaken because they enhance India’s competitiveness are fundamentally different from reforms extracted under the implicit threat of tariffs.
The distinction matters. One reflects sovereign policymaking. The other rewards economic coercion. The Commerce Ministry is correct in highlighting that sustained engagement enabled India to secure the lower tariff band and that approximately 45% of exports remain outside the scope of the new duties. Those are tangible achievements. Equally important is the government’s commitment to continue engaging Washington to operationalise the proposed textile mechanism and conclude the BTA.
Yet success should ultimately be measured not by whether India negotiated a tariff down from 12.5% to 10%, but by whether the final Bilateral Trade Agreement prevents such unilateral actions from becoming the norm.
History suggests that negotiating under pressure rarely produces durable partnerships. India must therefore approach the final stages of the BTA with clarity. It should resist the temptation to trade long-term strategic autonomy for short-term tariff relief. It should insist that a comprehensive trade agreement reduces unilateral barriers rather than legitimises them.
If New Delhi fails to draw that line today, Section 301 will not be remembered merely as a forced-labour investigation. It will be remembered as the moment when tariffs ceased to be instruments of trade policy and became the currency of diplomacy itself—and when India had to decide whether it would negotiate as an equal partner or under the shadow of economic pressure. (IPA Service)
