The United States has drawn a new line in the global trade and India is not far away from that line, but not far enough. Washington's duty on Indian goods, of 10 per cent instead of the original 12.5 per cent, has been touted in some circles as a diplomatic success. An analysis of how the order was put together and who else was included suggests that New Delhi has purchased itself a small concession, not a real advantage.

The tariff was prompted by an investigation launched by the Office of the US Trade Representative (USTR) into approximately sixty countries and whether they were taking adequate steps to prevent goods containing forced labour from being incorporated into their supply chains. USTR Jamieson Greer, who announced the final action on behalf of the Trump administration, said that the U.S. has been a leader in imposing a ban on forced labor imports for almost 100 years and that trading partners were long past due to follow suit. Among the sixty countries named, seventeen countries, including India, Pakistan, Bangladesh, Sri Lanka, Canada and the United Kingdom were in the bottom 10 percent category. Forty-three other countries, including China and Vietnam, will be subject to a 12.5 percent tax. A new global tariff of 10 percent was scheduled to expire at midnight in New York on July 24, as had been a much wider-ranging 10 percent "Liberation Day" tariff in the previous year, following a Supreme Court decision in February that invalidated the previous year's tariffs.

India's elevation to the lighter tier wasn't a coincidence. In mid-June, after receiving the proposal from USTR, India's Foreign Trade Policy was changed to expressly forbid goods "manufactured using forced labour". In mid-July, India's Foreign Trade Policy was revised again to include the same provision. Commerce Secretary Rajesh Agrawal has said the amendment was done in this context and it seems Washington has taken note of it while deciding the lower rate. It's a reminder that in this round of tariff diplomacy, the paper and the wording of the statutes have been as important as the negotiating leverage.

But India hasn't just taken the basic premise of the investigation on board. During the public hearing on July 8 before the USTR, a high-ranking Commerce Ministry official contended that it was an exercise without a proper legal grounding, since there was no country-specific data to explain why it was needed and dozens of economies with very different labour records were put into one broad category. The complaint, however, has not changed the result, but it indicates India's determination to continue challenging Washington on the equity of equating trade penalties with a human-rights standard that is unevenly enforced in vastly different economies, ranging from South Asia's clothing centers to the oil export-rich powers in the Gulf.

Not the 10 per cent in the headline figure, but the company that it's keeping is a factor that matters most to Indian industry. Pakistan, Bangladesh and Sri Lanka, India's closest competitors for orders for garments and apparel from the USA, are in the same bracket. The Confederation of Indian Textile Industry (CIT) has been very clear about this. The tariff has no expiration date, Indian exporters face reputational risks of being publicly labeled a party to a forced-labour investigation, and could make other sourcing choices more attractive for competitors with a similar forced labour burden, but not the same. The textile and apparel industry, which exports nearly US $11 billion annually to the U.S. and provides jobs for millions of people and accounts for about two percent of India's GDP, is clearly in the crosshairs. But there's more to the uncertainty, as the USTR has separately secured 3-year tariff rate quotas for Bangladesh, Cambodia, Indonesia and Malaysia, all of which may provide those countries with more predictability than Indian exporters are currently enjoying.

There is the other side to it, too, as to who really absorbs the cost? Customs law in the USA states that the duty is to be paid by the person who imports the good, and not by the originator. But in reality, price-sensitive contracts generally don't work so smoothly. Now because the margin the buyer is facing is getting slimmer, they push back the pain by asking the suppliers to bear a portion of the increment, delay orders or simply divert the volumes to other destinations altogether; none of which is a part of India anyway, and so the pain trickles back to the Tiruppur, Surat or Ludhiana factory floors.

In this context, the episode follows a familiar pattern from the other day, when the courts curtailed Washington's tariff power. After losing the sweeping emergency powers it had in the past for blanket duties, the administration is now using less broad, more statute-based instruments and forced-labour ones at that to maintain pressure on trading partners while a more comprehensive bilateral trade pact is still being negotiated, and one that both sides hope will encompass five hundred billion dollars in annual trade. The lesson for India should not be that they have lost out on any single round of tariff negotiations, but that market access to the United States is now being negotiated one-by-one on a statute-by-statute basis. That makes it good advice for New Delhi to continue developing its own legal and enforcement structure around labour standards, not just to meet the checklist, but if they're to have any leverage the next time one of these cases comes up on the table. After all, that shouldn't be the last one.