US-India Trade Tension: Trump Admin Warns of Returning Tariffs
As India and the United States engage in critical negotiations to finalize a bilateral trade agreement, the Trump administration has issued a stern warning regarding the potential return of high tariffs. US Treasury Secretary Scott Bessent recently indicated that previous tariff levels could be reinstated through Section 301 investigations, adding a layer of complexity to the ongoing trade talks.
The Section 301 Strategy and Bessent’s Warning
US Treasury Secretary Scott Bessent has signaled that the administration is prepared to use Section 301 investigations as a lever to influence global trade practices. Currently, the US is operating under Section 122 tariffs, which impose a 10% global tariff scheduled to expire on July 24. However, Bessent cautioned that if ongoing studies by the Office of the US Trade Representative (USTR) are successful, tariff rates could revert to their earlier, much higher levels.
This move comes after the US Supreme Court ruled that "reciprocal tariffs" were illegal. Consequently, the administration is pivoting toward Section 301 of the US Trade Act of 1974. This provision empowers the USTR to investigate foreign trade policies that allegedly disadvantage US interests, effectively serving as a new tool for negotiation.
Impact on India: Forced Labour Allegations and New Duties
India finds itself at the center of these investigations. The USTR has identified India as one of 54 economies that have allegedly failed to effectively enforce prohibitions on imports linked to forced labour. In its preliminary findings, the USTR has proposed an additional 12.5% tariff on imports from India and over 50 other nations.
Furthermore, a separate Section 301 investigation into "structural excess capacity" involving 15 countries, including India, is currently underway. The timeline for these developments is tight: countries wishing to challenge findings must submit requests by June 22, 2026, with hearings scheduled to begin on July 7. A final determination is expected in July, coinciding with the expiration of the current 10% tariffs.
India’s Stand: Protecting Competitive Advantage
The timing of these warnings is significant, as US Trade Representative Jamieson Greer recently met with India's Commerce Minister Piyush Goyal to finalize the first phase of a bilateral trade agreement (BTA). While both nations suggest they are "very close" to a deal, India remains firm on its core requirements.
Minister Goyal has emphasized that any agreement must preserve India's competitive edge over regional rivals such as Vietnam, Thailand, China, and Malaysia. India had previously negotiated a reduction in tariffs on certain exports from 50% to 18%, a move specifically designed to provide an advantage over neighboring cost structures. Goyal has made it clear that the BTA cannot enter into force until a framework is finalized that ensures India does not lose this hard-won competitive positioning.
Key Takeaways
- Potential Tariff Reversal: The US administration may use Section 301 investigations to reinstate high tariff rates if current trade practices are deemed unfair to US interests.
- Specific Risks for India: India faces a proposed additional 12.5% tariff due to USTR findings regarding forced labour, alongside an ongoing probe into structural excess capacity.
- Negotiation Deadlock: India refuses to finalize the bilateral trade agreement until it secures a framework that maintains its competitive advantage over ASEAN and other neighboring economies.