New Delhi:
A year since US President Donald Trump announced harsh reciprocal trade tariffs on India, a trade deal remains in the offing with the main hurdle being a little-known but powerful law – Section 301 of the US Trade Act of 1974.
The first phase of the bilateral trade agreement between India and the US can be finalised after the conclusion of two unilateral Section 301 investigations, launched by the US Trade Representative (USTR) against India and many other countries.
What Is Section 301?
The provision allows Washington to investigate whether another country’s policies restrict US commerce or are unreasonable or discriminatory. If a country is found in violation, punitive measures can include:
- Additional tariffs
- Restrictions
- Withdrawal and trade concessions
Why Is India Under Scrutiny
India is being probed on two fronts – one pertains to failures in eradicating forced labour in global supply chains, and the other is about excess manufacturing capacity.
On June 2, the USTR proposed imposing 12.5 per cent tariffs on 54 countries, including India, for allegedly failing to prohibit the import of goods produced with forced labour. The report of the second probe (excess capacity) is awaited.
The conclusion of the probe is important as the temporary 10 per cent additional tariffs imposed by the US will end on July 24. After that, only the MFN (most favoured nation) tariffs will apply on the USA’s trading partners.
After that, if the US wants any taxes to be paid by India, the Section 301 probes will have to be completed.
Why The Probe Is A Hindrance
After India and the US reached a broad trade framework in February, Washington launched Section 301 investigations in March. Now, India is looking for clarity as the July expiry of tariffs might make tariffs under Section 301 the benchmark. Another hurdle will be to sign a deal and face fresh tariffs later should the probe end in an unfavourable outcome.
For Washington, the provision is a strategic lever that allows World Trade Organisation (WTO) processes to be bypassed.
How Section 301 Could Impact Indian Trade
The US was the second-largest trading partner of India in 2025-26. India’s outbound shipments to the US grew marginally by 0.92 per cent to $87.3 billion during 2025-26, while imports increased 15.95 per cent to $52.9 billion. The trade surplus declined to $34.4 billion in 2025-26 from $40.89 billion in 2024-25.
Additional duties will directly hit exports, especially in major sectors like textiles, steel and auto components, leading to narrower margins. Apparel and solar are other vulnerable sectors.
Further, it would hamper India’s ambitions to become a key manifacturing hub as industries will look to shift to other ASEAN hubs.
How Would It Impact The US
It is often the case that higher tariffs are passed on to the consumer, which translates into higher prices of products and lower accessibility to them. The short term may see retailers absorbing costs and local producers being protected from international competitors. The longer term may spell inflationary pressures on buyers.
