Section 301 tariffs (specifically the July 2026 forced-labor measures) impose an additional 10% ad valorem duty on most non-exempt Indian goods entering the US. This replaced an expiring temporary 10% global surcharge (under Section 122) and followed a USTR investigation into trading partners’ failure to adequately prohibit/enforce bans on imports produced with forced labor.
India secured the lower 10% tier (down from a proposed 12.5%) after amending its Foreign Trade Policy in mid-2026 to explicitly ban imports of goods made with forced or coerced labor. This placed it alongside competitors such as Bangladesh, Pakistan, Sri Lanka, Indonesia, Malaysia, Cambodia, Canada, Mexico, and the UK, while many others (including China, Vietnam, Thailand and Türkiye) face 12.5%.
Scope and Coverage
· Affected share : Roughly 55–70% of India’s exports to the US face the additional 10% on top of normal Most-Favored-Nation (MFN) rates. The remaining ~45% are exempt.
· Key exemptions :
o Generic pharmaceuticals.
o Smartphones and certain other specified electronics/products that already attract zero additional duties.
o Goods already subject to Section 232 national-security tariffs (steel, aluminum, auto parts, and related derivatives)—these continue under their separate higher duties (often 25–50%) without the extra 10%.
· Heavily exposed sectors (typically MFN + 10%) : Engineering goods, textiles and garments, chemicals, machinery, plastics, leather products, gems and jewellery, furniture, and most other manufactured/labor-intensive goods.
The duty is applied fully on top of existing MFN rates (unlike some partners that receive a “top-up” approach to a combined ceiling). Example : A product with a 6.5% MFN rate faces a combined ~16.5%.
A textile-specific tariff-rate quota (TRQ) mechanism was referenced for certain competitors (Bangladesh, Indonesia, Cambodia, Malaysia) for shipments using US-origin cotton/fiber, but it was not yet operational as of late July 2026 and does not apply to India—creating a potential competitive disadvantage in apparel.
Economic and Trade Impacts
On Indian exporters :
· For most products, the net change in duty burden was limited because the new 10% largely replaced the prior temporary 10% surcharge. Landed costs did not jump by a full additional 10 percentage points overnight.
· Labor-intensive sectors (textiles/garments, leather, some engineering) face margin pressure. Pre-finalization analyses estimated potential 8–10% margin erosion in apparel if higher rates had applied, plus higher compliance costs, the lower final rate and parity with key peers mitigated this somewhat.
· Relative competitiveness is largely preserved versus peers on the same 10% rate. India gains a modest edge over higher-rate countries (China, Vietnam, etc.), which could support limited trade diversion.
· Overall tariff incidence for India under these measures remains lower than for most of the ~60 economies covered.
Observed trade data (post-July 2026) :
· Indian merchandise exports to the US rose ~21.8% year-on-year in August 2026 (to ~$8.3–8.4 billion), the strongest monthly growth in nine months, accelerating from ~12.7% in July. This occurred despite the Section 301 duties and followed earlier volatility from higher 2025 tariffs (peaks near 50%).
· April–August 2026–27 cumulative exports to the US grew ~6.2% to ~$42.8 billion. The US remains India’s largest export destination (~one-fifth of total goods exports).
· Broader Indian exports also performed strongly (overall merchandise exports +26.1% YoY in August), suggesting resilience and possible shifts toward other markets or product categories.
Longer - term risks include potential stacking with other measures (e.g., a separate ongoing Section 301 probe into excess industrial capacity that could add further duties) and the absence of textile TRQs. Industry groups (e.g., textiles) have flagged reputational and sourcing-diversion risks.
Broader Context and Outlook
These tariffs form part of a wider US strategy using Section 301 (a more durable legal authority than the emergency powers struck down by the Supreme Court earlier in 2026) to address perceived unfair practices across nearly all major trading partners (~99% of US imports covered in the package).
For India, the measures coincide with ongoing bilateral trade agreement (BTA) negotiations. A successful deal could secure preferential treatment, further exemptions or offsets. Indian officials have emphasized continued engagement and noted the relative advantage secured.
Impacts remain fluid : short-term effects have been muted by the rate continuity and exemptions, export data show resilience but labor-intensive sectors face ongoing cost pressure and future actions (capacity probes, energy-linked measures or BTA outcomes) could alter the picture. Product-specific rates and any TRQ implementation should be checked via official USTR notices or US HTS schedules for precision.