USA’s Section 301 Probe Against India

Important Questions for UPSC Prelims, Mains and Interview

What is the trade structure between India and the United States and why did the US earlier allow lower tariffs on India?
What legal mechanisms does US have to address trade deficits & unfair trade practices?
What major events occurred between 2024 and early 2026 in US-India trade policy?
What is the Section 301 investigation started in March 2026?
Which sectors in India are being examined in the investigation and why?
What could be the outcome of the ongoing Section 301 investigation?

Q1. What is the trade structure between India and the United States and why did the US earlier allow lower tariffs on India?

Trade Structure between India and the US: India exports goods worth about $90 bn to the US while the US exports goods worth about $45 bn to India. Total bilateral trade = $135 bn.
As Indian exports > US exports, India has a trade surplus (US – trade deficit) of $45 bn.
Earlier, the US imposed lower taxes on Indian products, while India imposed higher taxes on American products. This contributed to the US trade deficit and lower tax collection for the United States.
However, the United States accepted this situation because of its strategic interests (which were more important than economic interests), which included countering China’s influence, gaining access to Indian markets and building alliances in the Indo-Pacific region.

The US has two important laws that allow it to impose economic measures:

International Emergency Economic Powers Act (IEEPA), 1977	Trade Act of 1974 (Sections 301–310)
1. It allows the President of the United States to exercise economic powers during an emergency.	1. It provides a legal framework for the Office of the United States Trade Representative (USTR) to address unfair trade practices.
2. It allows broad economic sanctions.	2. The law allows specific economic sanctions and tariff measures.
3. Measures can be implemented quickly because they are linked to emergency situations.	3. The process involves proper hearings and public comments before action is taken.
4. No tariff involvement there	4. Tariff Involvement there.

November 2024: After Donald Trump was re-elected as President of the US, the administration adopted an aggressive tariff policy targeting several countries such as China, India, Mexico, and Canada in order to reduce the US trade deficit.
February 2025: The US invoked IEEPA and imposed tariffs on several countries including India. For India – 25% reciprocal tariff, and 25% additional tariff because India imported oil from Russia. This resulted in a total tariff of 50% on certain imports from India.
May 2025: A case was filed in US Federal Court challenging the use of IEEPA for tariff imposition. The argument stated that IEEPA only allows sanctions and does not authorize taxation or tariffs. The court accepted the case.
January 2026: A framework trade deal between India and the United States was announced, although it was not finalized. The proposal included reducing tariffs from 50% to 18%, and increasing bilateral trade from 135 billion dollars to 500 billion dollars over 5 years.
February 2026: The Federal Court ruled that IEEPA does not authorize tariffs. Therefore, the Trump administration had to terminate the tariffs imposed under IEEPA. After this decision, the administration introduced a 10% import surcharge under Section 122 of the Trade Act of 1974.

In March 2026, the USTR initiated a Section 301 investigation under the Trade Act of 1974 (Sections 301–310) against several countries including India.
Aim: To determine whether countries trading with the US are engaging in unfair trade practices.
The investigation specifically examines whether countries are deliberately subsidizing manufacturing sectors and increasing production capacity mainly to export products rather than meet domestic demand.

The investigation has identified several sectors in India where manufacturing capacity has increased significantly. These sectors include: Solar modules, Petrochemicals, Steel and Textiles.
According to the investigation, India may have deliberately increased manufacturing capacity to export goods to the US.
In some sectors, manufacturing capacity is estimated to be about 3 times higher than domestic demand.
This situation is described as export-driven surplus production, which contributes to India’s trade surplus with the US.

The Section 301 probe will go through public comments & hearings before a final decision is taken. The final decision is expected in May 2026.
If the investigation concludes that India has engaged in unfair trade practices, the United States may impose tariffs or other trade measures on India under the Trade Act of 1974.
In addition, the US Court of International Trade (CIT) has ordered that the money collected via tariffs imposed under IEEPA must be refunded, since those tariffs were not legally authorized.