India-US Trade Dispute and Its Impact – Explained

Trade Dispute Latest News

• The United States has initiated Section 301 investigations against India and several other economies to examine whether their trade practices harm U.S. commerce.

Background: India-US Trade Relations

• India and the United States share one of the largest bilateral trade relationships in the world. 
• The US remained India’s largest trading partner for the fourth consecutive year in 2024-25, with bilateral trade valued at $131.84 billion.
• However, despite growing economic ties, trade disputes occasionally arise over tariffs, market access, and industrial policies. 
• The recent investigation launched by the U.S. government represents one such development in the evolving trade relationship between the two countries.
• The investigation has raised concerns about potential new tariffs that could affect Indian exports to the U.S.

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Current Tariff Situation in the United States

• The background to the investigation lies in recent developments in the U.S. tariff regime.
• In February 2026, the U.S. Supreme Court ruled against the use of the International Emergency Economic Powers Act (IEEPA) by the U.S. President to impose reciprocal tariffs on trading partners. 
• Before this ruling, India had been subjected to reciprocal tariffs of up to 50% from August 2025, which were later reduced to 25% until February 2026.
• Following the court decision, the U.S. administration imposed a temporary 10% tariff on imports from all countries for 150 days under Section 122 of the Trade Act of 1974. 
• However, the U.S. government also indicated that other legal provisions, such as Section 301, could be used to introduce additional tariffs if required.

Section 301 of the U.S. Trade Act

• Section 301 of the Trade Act of 1974 allows the U.S. government to investigate and respond to foreign trade practices that are considered unfair, discriminatory, or harmful to U.S. businesses.
• Under this provision, the Office of the United States Trade Representative (USTR) can examine policies of foreign governments that restrict U.S. commerce.
• If such practices are confirmed, the U.S. government may take retaliatory actions such as imposing tariffs or other trade restrictions.
• Section 301 has previously been used in trade disputes with several countries, including China.

First Investigation: Excess Manufacturing Capacity

• On March 11, 2026, the U.S. Trade Representative initiated a Section 301 investigation against 16 economies, including India. 
• The investigation aims to determine whether these countries have developed excess manufacturing capacity that allows them to export large volumes of goods to the U.S., thereby harming American industries.
• In India’s case, the U.S. government cited the country’s bilateral trade surplus with the United States, which it estimated at $58 billion in 2025. 
  • However, Indian government data suggests that the surplus was around $42.2 billion during the same period.
• The U.S. investigation also identified certain sectors where India may have surplus production capacity, including Solar modules, Petrochemicals, Steel and Manufacturing sectors such as textiles and automotive goods.
• According to the U.S. order, India’s solar module manufacturing capacity is reportedly almost three times higher than domestic demand, indicating the possibility of export-driven production. 

Second Investigation: Forced Labour Concerns

• A day after the first investigation, the U.S. announced a second Section 301 investigation covering 60 countries, including India.
• This investigation aims to determine whether countries have taken adequate steps to prevent the import of goods produced through forced labour. 
• The U.S. government argues that the failure to eliminate such practices could negatively affect American workers and businesses.
• This inquiry will evaluate whether the participating countries have implemented effective policies to prevent forced labour in global supply chains.

Possible Impact on Indian Industries

• The outcome of the investigations could have implications for several Indian export sectors.
• For example, sectors such as steel, aluminium, automobiles, and auto components already face significant tariffs in the U.S. market. 
• In addition, India’s textiles and apparel sector has expressed concerns about rising uncertainty in global trade conditions.
• Industry representatives have noted that the new investigations could add further pressure on export-oriented industries that are already facing global economic challenges.
• However, trade experts have emphasised that the investigations will likely take several months to conclude and may not have immediate consequences.

Responses from Governments and Industry

• So far, the Indian government has not issued an official public response to the investigations.
• In contrast, the European Union, which is also part of the investigation, has strongly reacted and warned that it will respond proportionately if trade commitments are violated.
• Indian industry leaders have adopted a cautious approach. Experts have stated that these investigations are typically lengthy processes and do not necessarily lead to immediate trade restrictions.

Source: TH