US targets extra 12.5% tariffs on India, 59 other countries for not enforcing forced labour ban

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The United States (US) plans to impose fresh tariffs of at least 10% on imports from major trading partners due to forced-labor practices. India may face a higher 12.5% tariff, the Mint news agency reported on Wednesday.

US Ambassador Jamieson Greer said that "the failure of our most important trading partners to address the importation of goods made with forced labor is unacceptable. This creates a dynamic where American workers are forced to compete globally on an unlevel playing field.”

On Tuesday, the United States Trade Representative (USTR) stated that 54 of the economies "failed to impose and effectively enforce a forced labor import prohibition." And these countries are likely to face 12.5% levies. This group includes China, Vietnam, India, Taiwan and the United Kingdom (UK).

Market reaction

At the press time, the USD/INR pair is up 0.33% on the day to trade at 95.65.

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What are tariffs?

Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.

What is the difference between taxes and tariffs?

Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.

Are tariffs good or bad?

There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.

What is US President Donald Trump’s tariff plan?

During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.