India Gains Relative Export Advantage as US Imposes New Section 301 Tariffs on Trading Partners

10% tariff on Indian goods replaces temporary levy, while higher duties on several competing exporters improve India's relative position in key labour-intensive sectors

The United States has announced a new tariff framework under Section 301, reducing the tariff on Indian goods from the initially proposed 12.5% to 10% after India introduced a ban on imports of goods produced using forced labour. The new 10% Section 301 tariff replaces the temporary Section 122 levy that had previously applied to Indian exports.

According to the announcement, countries that have prohibited imports of goods produced using forced labour will be subject to an additional 10% tariff. This has positioned India more favourably than several competing exporters, including China, Vietnam, Thailand and Türkiye, which will face a 12.5% tariff.

SC Ralhan, president of the Federation of Indian Export Organisations (FIEO), said: “This has helped India secure a relatively favourable position compared to many of its global competitors.”

The report noted that India has become one of 17 countries that have prohibited imports of goods produced using forced labour following a notification issued on July 13. Along with Bangladesh, Pakistan, Sri Lanka, Indonesia and Malaysia, Indian exporters are expected to retain their relative competitiveness in labour-intensive sectors such as textiles, garments, leather and footwear.

For the European Union, Taiwan, Japan, South Korea and Switzerland, the additional tariffs will be applied on a net basis, meaning combined tariffs will reflect the prescribed levy rather than being added to existing Most Favoured Nation (MFN) duties. Other countries will continue to face an additional 12.5% tariff.

The report states that approximately 70% of India's exports to the United States will now attract MFN tariffs along with the new 10% Section 301 duty. Products covered under Section 232, including steel, aluminium, copper and auto components, will continue to face separate tariffs ranging between 25% and 50%, according to Ajay Srivastava, founder of GTRI.

The Section 301 tariffs replace the existing 10% additional duties under Section 122 of the Trade Act, which expired after the US Supreme Court invalidated country-specific tariffs imposed through an executive order. While Section 122 tariffs were limited to 150 days, Section 301 tariffs remain in force unless reviewed by the US administration.

The investigation into imports of products made with forced labour was initiated in March under Section 301. It covered 60 trading partners representing 99.4% of US imports. The investigation report released on June 2 recommended tariffs ranging from 10% to 12.5% following public hearings and consultations. The US Trade Representative, Jamieson Greer, later published the final findings confirming the tariff measures.

The Office of the USTR is also conducting separate investigations into policies of India, China, the European Union, Singapore, Switzerland, Japan and nine other economies concerning excess manufacturing capacities and their impact on American businesses. The report noted that these investigations could lead to additional tariff measures.

The tariff exemptions include raw materials and agricultural inputs that the United States cannot produce in sufficient quantities, products where tariffs could contribute to inflation or supply disruptions, selected industrial inputs including certain plastic resins, medical supplies and metal products.