New USTR tariff threats deepen trade uncertainty for India and beyond

The United States Trade Representative’s (USTR’s) proposal to impose an additional 12.5 per cent tariff on imports from India under Section 301 of the US Trade Act, 1974, is an attempt to increase overall restrictions on America’s imports. The proposal followed an investigation into whether 60 economies, including India, have adequate safeguards against imported products manufactured using forced labour. The USTR has concluded that all 60 economies have fallen short on this count. Countries such as Canada, nations of the European Union, the United Kingdom, and Australia may face an additional 10 per cent tariff, while India and several others would face 12.5 per cent. The sheer breadth of the findings raises questions about the purpose of the exercise. Forced labour is a legitimate concern, but an investigation that covers economies accounting for about 99 per cent of US imports and finds every one deficient appears less like targeted enforcement and more like a search for legal justification for new tariffs. 

For India, the implications extend beyond the headline tariff rate. The USTR’s report identifies exposure across sectors such as aluminium, cotton, electronics, lithium-ion batteries, and rice, while also flagging exports involving products linked to cotton, fish, palm oil, coffee, cocoa and nickel supply chains. Clearly, the USTR’s recommendation cannot be separated from developments in US trade policy over the past year. After the courts struck down the Donald Trump administration’s reciprocal tariffs imposed under emergency powers, Washington turned to alternative legal routes. Temporary tariffs were imposed under Section 122 of the Trade Act, which would soon expire. 

Tariffs are central to Mr Trump’s economic agenda. The administration thinks the world has not been fair to the US, and that is reflected in the trade deficit. It also believes that tariffs will cut imports and increase domestic production, resulting in job creation. Thus, in March, the USTR launched two major Section 301 investigations. One was on forced labour and the other one was on what the USTR describes as “structural excess capacity” in manufacturing sectors of 16 economies, including India. The investigation covers industries such as solar modules, textiles, the health industry, automotive goods, petrochemicals, steel, and construction goods. While such concerns are often associated with China’s state-led industrial model, India too has been brought within its ambit. The pattern is difficult to miss. 

The Union Ministry of Commerce and Industry on Wednesday issued a statement that India will remain engaged with the US through the ongoing Section 301 consultation process, while simultaneously pursuing the framework trade agreement announced earlier this year. The USTR proposal has clearly made the ongoing trade negotiations more difficult. It was reported that the tariffs under Section 301 would not be imposed on India if both sides arrived at an agreement. It was also reported from the US side that the deal was 99 per cent done. Given the renewed uncertainty, the government must effectively put forward its position with US negotiators. However, the problem with the current US administration is that nothing can be taken as certain. The experience of other countries shows that the US can always impose new conditions even after a deal is done. Thus, conditions are likely to remain uncertain for some time, and the uncertainty is not limited to India. The US administration is targeting all its major trading partners. This could further increase global uncertainty and disrupt supply chains.