45% of Indian Exports to US Exempt from New 10% Section 301 Tariff; Textile Deal Under Discussion

Why Two‑Thirds of India’s US‑bound Goods Stayed out of the 10% Duty

The United States has imposed an additional 10% ad valorem tariff on a significant slice of Indian imports under its Section 301 investigation into alleged forced‑labour practices. However, around 45% of India’s exports to the US—worth roughly $39.3 billion in fiscal 2026—will be shielded from the new levy, the Indian commerce ministry confirmed on Saturday.

The goods that escaped the extra duty include generic medicines, smartphones and several other specified products that were never within the investigation’s scope. Steel, aluminium and auto parts already covered by Section 232 tariffs are also excluded. For the remaining 55% of shipments, the 10% charge will apply, though New Delhi stressed that India’s tariff incidence is lower than for most other economies under the same investigation.

The final rate is notably softer than the 12.5% originally proposed on 2 June. Officials credited months of submissions, consultations and public‑hearing appearances before the US Trade Representative for the reduction. A separate textile‑specific mechanism mentioned in the final measures has not yet been established, and India said it is continuing discussions with Washington—both on that mechanism and as part of ongoing negotiations for a broader bilateral trade agreement.

The Gem and Jewellery Export Promotion Council (GJEPC) quickly rejected any link between India’s gem trade and forced labour. While the industry body acknowledged that Indian exporters still hold a 2.5‑percentage‑point advantage over rivals in China and Hong Kong—where the additional duty is 12.5%—it warned that diamond‑trading hubs in Europe and Africa enjoy duty‑free access for natural diamonds, leaving Indian sellers at a competitive disadvantage even with the lower tariff.

Where India Gains—and Where the Edge Is Thinner

The arithmetic of the 45% exemption

The exemption covers products that were never targeted by the forced‑labour investigation, either because they were already subject to other duties (Section 232) or because the US Trade Representative deliberately carved them out. This means the real bite of the new tariff falls on the 55% of goods that now face an extra 10%—mostly in categories where India does not have the same blanket protection. For those exporters, the additional cost is a concrete margin squeeze, though the ministry’s assurance that India’s overall incidence remains lower than peers is meant to signal competitiveness.

Why the rate dropped from 12.5% to 10%

The US move to soften the tariff is almost certainly a diplomatic signal. India’s sustained engagement—detailed written submissions, formal consultations and public‑hearing participation—showed the USTR that New Delhi was serious about addressing forced‑labour concerns without resorting to confrontation. The 2.5‑percentage‑point cut is not huge, but it sends a message that India’s arguments were heard, and it may help keep the bilateral trade negotiation channel alive.

The textile mechanism: a wildcard for a major export

The mention of a textile‑specific mechanism in the final notice raises a risk that additional rules—maybe traceability or certification requirements—could emerge later. Sectors like garments and home textiles are among India’s large employers; any new compliance burden would be costly. Because the mechanism is still undefined, exporters cannot plan for it, leaving a cloud over an area where India had hoped to build on the US‑China trade‐diversion opportunity.

Gem and jewellery: privilege, but not protection

The GJEPC’s reaction highlights a nuanced reality. Indian stone‑cutting and polishing faces no forced‑labour stigma, but the competitive landscape is brutal. With European and African hubs shipping natural diamonds tariff‑free into the US, the 10% extra duty—even if lower than China’s burden—erodes India’s price edge. The 2.5‑point advantage over Asian rivals matters, but it will not fully offset the permanent cost disadvantage against duty‑free alternatives. That makes it essential for Indian players to defend their value proposition through quality, speed and design rather than cost alone.

What Indian Exporters Should Do Now

• Exporters whose goods fall in the exempt 45% bracket should confirm that their product codes officially match the carve‑out list published by the USTR to avoid surprise customs bills. The fact that generic medicines and smartphones are shielded is a near‑term relief, but trade‑deal talks could eventually alter the landscape.
• Businesses selling into the 55% that now carry the 10% duty need to rework their landed‑cost models immediately. Even though India’s final rate is lower than many peers’, customers may still ask for price concessions; proactive communication on the relative advantage could soften the blow.
• Textile manufacturers must watch the US‑India trade negotiations closely. The undefined “textile‑specific mechanism” is the most unpredictable element—once rules are set, compliance deadlines could be short. Parallel engagement with industry associations to prepare for possible traceability or certification demands would be prudent.
• Gem and jewellery exporters should treat the new environment as a prompt to diversify away from price‑sensitive segments. Expanding into custom cuts, branded jewellery or markets outside the US where India’s tariff treatment is clearer can reduce exposure to the lingering duty disadvantage against duty‑free hubs in Europe and Africa.