The first phase of the proposed India-United States trade agreement is expected to be finalised only after the completion of two unilateral investigations launched under Section 301 of the US Trade Act of 1974. The investigations, initiated by the Office of the United States Trade Representative (USTR), target India and several other countries and have become a critical factor in ongoing trade negotiations.
Section 301 grants Washington the authority to investigate whether the policies and practices of another country restrict United States commerce or are deemed unreasonable or discriminatory. If a country is found to be in violation, the United States can impose punitive measures, including additional tariffs, trade restrictions, and the withdrawal of trade concessions.
India is currently under scrutiny in two separate investigations. The first concerns alleged failures to eliminate forced labour from global supply chains. On June 2, the USTR proposed imposing tariffs of 12.5 per cent on imports from 54 countries, including India, alleging insufficient action against goods produced through forced labour. The second investigation focuses on excess manufacturing capacity, and its findings are still awaited.
The outcome of these probes carries significant implications because the temporary 10 per cent additional tariffs imposed by the United States are scheduled to expire on July 24. Once the temporary duties lapse, only Most Favoured Nation tariffs will apply to the country's trading partners. Any future tariff action against India would require the completion of the Section 301 investigations.
The investigations have complicated the path toward a trade agreement. Although India and the United States reached a broad trade framework in February, Washington launched the Section 301 probes in March. New Delhi is now seeking greater clarity, as the expiration of the temporary tariffs could allow any future duties imposed under Section 301 to become the new benchmark. Indian policymakers are also concerned about the possibility of signing a trade agreement only to face fresh tariffs later if the investigations produce unfavourable findings.
For Washington, Section 301 serves as a strategic instrument that enables the United States to act independently of World Trade Organisation procedures, giving it greater flexibility in trade enforcement actions.
The economic implications for India could be substantial. The United States was India's second-largest trading partner during the 2025-26 financial year. Indian exports to the United States increased by 0.92 per cent to $87.3 billion, while imports from the United States rose by 15.95 per cent to $52.9 billion. As a result, India's trade surplus narrowed to $34.4 billion from $40.89 billion in the previous financial year.
Additional duties would directly affect export-oriented sectors such as textiles, steel, and automobile components, placing pressure on profit margins. The apparel and solar industries are also considered particularly vulnerable. Higher tariffs could further undermine India's ambition to establish itself as a major global manufacturing hub, as businesses may shift production and investment to alternative destinations across Southeast Asia.
The impact would not be limited to India. In the United States, higher tariffs are often passed on to consumers through increased prices, reducing affordability and product accessibility. While retailers may initially absorb some of the added costs and domestic producers may benefit from reduced foreign competition, prolonged tariff measures could contribute to broader inflationary pressures across the economy.
As negotiations continue, the outcome of the Section 301 investigations is poised to play a decisive role in shaping the future of trade relations between India and the United States, influencing investment flows, export competitiveness, and economic ties between two of the world's largest economies.
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