What is the US' forced labour tariff and what it means for India?

While India managed to secure a lower tariff than originally proposed 12.5%, the move adds another layer of uncertainty to ongoing India-US trade negotiations.

The United States has announced a new 10% tariff on imports from India, saying the move is aimed at countries that have failed to adequately prohibit or enforce restrictions on goods made using forced labour. The tariff, announced by the Office of the US Trade Representative (USTR), is part of a broader action covering 60 economies and will replace the temporary 10% global tariff imposed earlier this year.

File image: Prime Minister Narendra Modi and Donald Trump shake hands after introductions during the 'Howdi Modi' event. (AP)

While India managed to secure a lower tariff than the originally proposed 12.5%, the move adds another layer of uncertainty to ongoing India-US trade negotiations. It also raises concerns for exporters, especially as India remains the subject of a separate Section 301 investigation into excess manufacturing capacity.

What is the US forced labour tariff?

The tariff stems from investigations launched by the Trump administration in March 2026 under Section 301 of the Trade Act of 1974. Section 301 allows the US government to investigate whether another country's trade practices are unreasonable or discriminatory and, if necessary, impose retaliatory measures such as tariffs.

Unlike temporary tariffs imposed under other provisions, Section 301 tariffs do not have an expiry date and are not subject to a maximum rate, although they require a formal investigation before being introduced.

The latest investigation examined whether 60 economies had failed to prohibit or effectively enforce bans on the import of goods produced wholly or partly through forced labour. Washington concluded that such failures distort trade, burden US commerce and amount to unfair trade practices.

Announcing the decision, US trade representative Jamieson Greer said the action was intended to address both human rights concerns and unfair trade practices.

"Today's action will begin to correct what is both a human rights abuse and distortive trade practice to improve the welfare of workers everywhere," Greer said.

Why was India's tariff reduced to 10%?

Initially, India was among countries expected to face a 12.5% tariff because Washington believed they had not done enough to curb imports of goods made with forced labour.

During the public consultation process, however, Indian officials and industry groups argued that India's Constitution prohibits forced labour and highlighted measures taken to address the issue.

The White House later said India had introduced a forced labour import prohibition after the investigations began. As a result, India was moved into the lower 10% tariff category alongside countries such as Bangladesh, Pakistan, Sri Lanka, Malaysia, Indonesia and the United Kingdom.

What does it mean for India?

The immediate effect is that Indian exports to the US will face an additional 10% duty under the new Section 301 action, unless they fall under exempted product categories identified by the US administration.

Although the tariff is lower than initially proposed, it still creates uncertainty for exporters because India is also facing another Section 301 investigation related to alleged excess manufacturing capacity. If additional tariffs emerge from that probe, Indian goods could become less competitive than those from neighbouring countries that are not subject to multiple investigations.

Mark Linscott, former assistant US trade representative for South and Central Asia, said India wants clarity that it will continue to enjoy preferential tariff treatment compared to regional competitors before concluding an interim trade agreement with Washington.

How does this affect India-US trade talks?

The tariff announcement comes even as New Delhi and Washington continue negotiations on a broader bilateral trade agreement.

Earlier this year, the two sides agreed in principle to a framework that would have reduced US tariffs on Indian goods from 50% to 18% in exchange for greater market access for American exports and increased Indian purchases of US products.

However, subsequent legal developments in the US, including the Supreme Court striking down the Trump administration's global reciprocal tariff framework, complicated those negotiations and created uncertainty over the final tariff regime.

Trade experts believe the new forced labour tariff is unlikely to end negotiations but could become another issue that both sides will have to resolve before finalising an interim trade deal.