A newly imposed US tariff against India and 60 other trading partners has been challenged in court. The lawsuit — filed by a group of 25 Democratic-ruled states — accuses the Donald Trump administration of trying to “illegally” raise taxes “after losing at the Supreme Court”. They contend that the levy ranging between 10% and 12.5% will further raise costs for consumers and businesses.

“After losing at the Supreme Court, the administration is once again trying to illegally raise taxes on families and businesses with a new round of tariffs. No matter how the administration tries to justify it, the law and our Constitution are clear that the president does not have the power to impose sweeping tariffs on whatever countries he wants,” New York attorney general Letitia James said in a statement.

Why is India facing 10% tariffs under US Section 301 probe?

The Donald Trump administration announced a fresh tariff ranging between 10% and 12.5% against 60 countries and groups last week — essentially ‘replacing’ a global 10% temporary tariff that expired on Friday. The duties follow a four month investigation by the office of the US Trade Representative under Section 301 of the US Trade Act of 1974.The Trump government claims these countries had failed to adequately enforce a ban on goods made with forced labor. 

The Commerce Ministry clarified last month that around 45% of Indian exports to the US remained outside the purview of these additional tariffs. Many segments that currently attract zero additional duties — such as generic pharmaceuticals, smartphones and certain other specified products — continue to remain outside its scope.

25 US states sue Trump administration

The coalition of states moved the US Court of International Trade against the Trump administration on Monday for implementing fresh tariffs on several countries including India. They have asked the court to declare these levies illegal — arguing that it is merely a pretext to impose the same sweeping tariffs the administration has repeatedly tried and failed to enact. The US government claims it is using Section 301 of the Trade Act of 1974 to combat forced labour in global trade.

“The lawsuit details how the tariffs are arbitrarily imposed with little connection to the administration’s stated goal of combatting forced labor. For example, the tariffs contain product exemptions that undermine their supposed goal. The administration’s report on its investigation identified just three products made with forced labor to justify tariffs on dozens of countries. Yet one of these, frozen beef from Brazil, is exempted from the tariffs,” James and NY Governor Kathy Hochul added.

Indian exporters brace for additional scrutiny

Indian exporters have also been urged to maintain detailed data records amid growing scrutiny of labour and supply chain documentation in the United States. The warning from the Federation of Indian Export Organisations last week — urging exporters to ensure detailed employee data such as wage records, age verification and supplier declarations. The organisation added that high-risk inputs such as cotton, polysilicon, minerals and other sensitive material require traceability.

“Strong labour and supply chain documentation will become a commercial necessity. US buyers are likely to intensify supply chain scrutiny after Section 301 measures. Exporters should maintain employee and wage records, proof of voluntary employment, age verification, contractor or subcontractor details and supplier declaration…Unsupported broad declarations should be avoided and any exception statement must cite precise Harmonised Tariff Schedule,” the FEIO said.

Indian textile exporters may lose competitiveness: Report 

A separate Emkay Research report warned last week that Indian textile and apparel exporters could lose some of their competitive edge in the US market — despite being placed in a slightly lower tariff bracket than competitors. Countries such as China, Vietnam, Brazil and Thailand are all facing a 12.5% tariff rate under the new US Section 301 measures. But the report noted that Indian textile exporters did not receive tariff-rate quota exemptions that were extended to several competing nations.

TRQ exemptions were awarded to several countries including Bangladesh, Cambodia, Indonesia, and Malaysia. The report added that the exemptions apply to specified volumes of textile and apparel imports made using US-origin cotton and fibre. It also cautioned that further Section 301 investigations by the US into excess manufacturing capacity could result in additional tariffs on India.

“Hence, while the tariff burden remains at 10%, there will be a relative loss of competitiveness for Indian textile exporters vs key competitors…ongoing negotiations on the India-US bilateral trade deal will be crucial to ensure a lower tariff rate and preferential access for Indian exports in the US market,” Emkay added.