India Imposes Forced Labor Import Ban to Reduce U.S. Tariff Exposure

India's new ban on imports made with forced labor will strengthen its position in trade talks with the United States by aligning its regulations with U.S. requirements, though unresolved concerns over manufacturing overcapacity will sustain the risk of broader Section 301 tariffs. On July 14, India's Ministry of Commerce and the Directorate General of Foreign Trade (DGFT) announced that they amended the country's Foreign Trade Policy (FTP), a government policy framework that outlines India's import and export regulations, to ban imports of goods produced using forced labor. The change aligns India's trade rules more closely with international labor standards and helps address concerns raised by the United States in an ongoing trade investigation. The amendment follows a June 2 announcement by the U.S. Trade Representative (USTR) that India, among other countries, lacked a legal framework to prevent imports made with forced labor, prompting a proposed 12.5% tariff under Section 301 of the U.S. Trade Act of 1974. The USTR is finalizing the affected product lists following a public comment period, with the final decision expected by late August or September and the new tariffs likely to take effect shortly after.

The amendment establishes a new provision in the FTP that bars the import of products manufactured, in whole or in part, with forced labor. It also authorizes the Indian government to impose import restrictions on specific products based on DGFT investigations or other supporting evidence. The DGFT will be responsible for examining suspected cases of forced labor in imported goods and may recommend trade restrictions where sufficient evidence exists.
Currently, Indian exports are subject to a 10% U.S. tariff under Section 122 of the Trade Act of 1974; this tariff is set to expire on July 24.

India and the United States continue to advance bilateral trade negotiations following recent high-level talks, although uncertainty over U.S. tariff policy has complicated efforts to finalize an agreement. The latest round of high-level U.S.-India trade negotiations concluded in New Delhi on June 23-24, with U.S. Trade Representative Jamieson Greer meeting Indian Commerce Minister Piyush Goyal. The talks followed a May visit by an Indian negotiating team to Washington and built on an interim agreement reached in February, under which the two sides agreed to an 18% U.S. tariff rate on Indian goods in exchange for New Delhi reducing trade barriers and increasing purchases of U.S. products. However, legal uncertainty surrounding U.S. tariffs has complicated progress toward a final agreement in recent months. In February, the U.S. Supreme Court struck down the sweeping global tariffs President Donald Trump imposed on India and other countries under the International Emergency Economic Powers Act. In the wake of the ruling and the White House's subsequent imposition of a 10% Section 122 tariff on India, New Delhi has adopted a more cautious, wait-and-see approach to negotiations, seeking more clarity on the direction and durability of U.S. tariff policy before making further commitments. Against this backdrop, reports recently emerged that New Delhi had rejected a quick trade deal with Washington. But on July 13, Goyal rejected the claims as "false, baseless and misleading," and said both sides were still committed to reaching a balanced bilateral agreement. On July 13, Indian Trade Secretary Rajesh Agarwal also said negotiations with the United States were advancing smoothly, and that India did not see any major obstacles in the talks.

The reports that Goyal later denied indicated that India and the United States failed to reach a trade agreement in recent negotiations, with New Delhi pushing for more favorable terms as Prime Minister Narendra Modi gains confidence from domestic political momentum and expanded trade partnerships with the European Union, the United Kingdom and New Zealand, among other countries.

While unlikely to be fully enforced, India's July 14 ban on imported goods made with forced labor could increase supply chain compliance costs for companies in certain sectors, including India's renewable energy and textile industries. While the new import ban will legally take effect on Aug. 12 (30 days after its publication in the Official Gazette), no products will actually be blocked until India establishes its own system to investigate and identify imports linked to forced labor, which the DGFT is working on. Regardless, the new rules are unlikely to be fully or uniformly enforced, given New Delhi's limited resources to ensure nationwide compliance and the fact that its primary motivation in enacting the reforms is securing lower U.S. tariff rates. But once enforced, the policy will likely still create supply chain challenges, particularly in India's renewable energy and electric vehicle industries, which rely heavily on solar panel components imported from China and critical minerals like cobalt imported from the Democratic Republic of Congo. The new regulations do not outright prohibit imports from countries like China and Congo, which have both been flagged by international organizations and foreign governments for forced labor risks in parts of their supply chains. However, to continue sourcing from these markets, companies will need to provide sufficient documentation demonstrating that their supply chains are not linked to forced labor. This may prove difficult given the complexity of tracing global supply chains, potentially increasing compliance costs and causing delays for those unable to verify their suppliers. While some Indian textile mills also source lower-cost cotton and yarn from high-risk regions in China and Central Asia due to better pricing and quality, India's large domestic cotton production and ability to diversify sourcing will mitigate disruptions in the sector. However, companies reliant on imported synthetic fabrics and specialized textile inputs from China may face higher costs as they shift to alternative suppliers, such as Vietnam, South Korea, Taiwan and domestic producers.

As the United States expands forced-labor-related trade actions against other countries, the risk of similar scrutiny being applied to Indian exports will likely increase as well. Labor-intensive Indian goods, such as apparel, leather and agricultural products, are the most exposed due to documented labor risks in parts of their supply chains, potentially raising compliance costs and creating additional barriers to maintaining access to the U.S. market.

As trade talks with the United States continue, India will also seek to mitigate its exposure to Section 301 tariffs and secure more favorable market access than competing U.S. trading partners. The United States and India will continue to work toward finalizing a bilateral trade agreement, especially as both countries stand to benefit from expanded market access, stronger supply chain integration and closer strategic economic cooperation. However, progress will likely remain complicated by U.S. sector-specific tariff measures that extend beyond the core negotiations. While India's new restrictions on forced-labor-linked imports could help address U.S. concerns and lower the proposed tariff from 12.5% to 10%, Washington is unlikely to remove the measure entirely, as the Trump administration views Section 301 tariffs as a broader tool for shaping trade policy and maintaining leverage over U.S. trading partners. The USTR is also pursuing Section 301 investigations into India (and 15 other economies) for manufacturing overcapacity, which could result in additional U.S. tariffs on specific Indian sectors. The probe centers on India's production-linked incentive (PLI) schemes, which have bolstered manufacturing expansion in areas like solar modules, electronics and electric vehicles. While India claims these policies aim to boost domestic production and reduce reliance on imports, rapid expansion in areas such as solar has outpaced near-term domestic demand, prompting Indian manufacturers to seek export markets. This has, in turn, raised concern in the United States that India's industrial policies are contributing to global oversupply and harming U.S. producers. However, unlike forced-labor compliance, which can be addressed through targeted import controls and enforcement measures, excess capacity reflects broader disagreements over industrial policy, government support and manufacturing expansion. New Delhi thus has less ability to mitigate these concerns, as it would require changes that conflict with its domestic manufacturing goals. As a result, U.S.-India trade talks will likely focus on managing, rather than eliminating, Section 301 tariff risks. India will likely seek to narrow the scope of such tariffs by offering sector-specific concessions — such as easing import licensing for some U.S. tech hardware or removing non-tariff barriers for U.S. medical devices — and continued bilateral engagement, while also seeking more favorable tariff treatment than competing U.S. trading partners.

According to the USTR, the proposed 10% Section 301 tariff rate is reserved for countries that either have domestic prohibitions on forced labor imports but inadequately enforce them or have entered into bilateral agreements with the United States to strengthen such enforcement. Countries that fall outside these categories, including India, were assigned the higher proposed tariff rate of 12.5%.