The 10 per cent tariff that the US has imposed on India and several other countries over their imports of goods supposedly made using forced labour has set the Modi government rethinking on various counts. Is it an attempt to restore permanent tariffs after the US Supreme Court’s decision in February 2026 removed the threat of high reciprocal tariffs to arm-twist countries into trade deals? A section in the government believes that US President Donald Trump’s solution of a temporary 10 per cent tariff on all countries should not be taken seriously, as it would expire in 150 days, and was levied on all countries equally, regardless of whether they had a deal with the US or not. However, uncertainty persists since the other Section 301 investigation, on excess capacity, is yet to play out and could result in further tariffs. It is highly unlikely that India will accept a trade deal until the status of these measures becomes clear. So, it is going to be a wait-and-watch game.
But, should it push India towards a deal? As senior officials say, experience has shown that the US tariff landscape can change radically even after a deal is signed. Even an ally like Canada is facing the brunt of Trump’s tantrums. As for India, on the face of it, the benefits of a trade deal are clear. The Section 301 ‘forced labour’ tariffs announced recently have inbuilt benefits for those with trade deals with the US. For example, while US imports from India will face a 10 per cent tariff over and above the base tariff the US charges everybody, the European Union and Taiwan will face a total tariff of 10 per cent. Similar benefits have been accorded to Japan, South Korea and Switzerland, all of which also have trade deals with the US at various stages of formalisation.
Tariff politics
Officials in the commerce ministry believe that, if stopping forced labour was the primary focus, tariffs should be applied equally across all offenders, regardless of trade deal status. The tariffs should also not have had as many product-wise exemptions and country-wise quotas as the final version has.
There is also the question of whether the US should be penalising other countries for their trade with third parties. India has not been accused of using forced labour, yet faces tariffs because others have been. This, soon after the US government told a court that it did not want to act as the ‘world police’. India has done well to reduce the proposed 12.5 per cent tariffs to a final 10 per cent, the same as or better than most of its competitors. All it took was a notification banning the import of goods made using forced labour. It is a different thing that action itself will be difficult to enforce, since it will require countries such as China and Malaysia to allow Indian government officials to visit and investigate their labour conditions.
The uncertainty on trade is forcing India to do a trapeze act seen in our foreign policy as well. India is adapting to Trump 2.0 by shedding some illusions about the US partnership but continues to invest in it. The relationship has always been a ‘nurtured rather than a natural’ partnership.
As a result of this, India’s testy relationship with China is seeing gradual changes. In Trump’s second term, that adhesive of mutual rivalry with China has been less dependable for India. Trump’s tariffs have strengthened another Indian motivation for stabilising ties with China: the possibility of limited economic re-engagement. New Delhi has sought to reduce over-dependence on the US market by diversifying its export destinations – to include China. The need to ease US tariff pressure on the economy also seems to have increased New Delhi’s willingness to reconsider restrictions on Chinese economic activity in India and to ease the ability of firms operating in India to acquire industrial inputs and technical expertise from China. There is also a desire to enable additional and alternative sources of investment, evident in the government’s decision to amend some of the restrictions imposed in 2020.
However, it is not that the India-US relationship is witnessing unprecedented strains. Following the appointment of Sergio Gor as ambassador, New Delhi has seen a stream of visits by US administration officials. Since arriving in New Delhi, Gor has framed his mission around steadying the relationship and expanding strategic cooperation. That effort has quickly yielded returns like an invitation to India to the US-led AI and supply chain security initiative ‘Pax Silica’, among other things. But the relationship is now on more transactional terms and with fewer assumptions of strategic accommodation. And there is a certain wariness about it.