Introduction
The United States’ accusation that goods entering its
market from countries where forced labour may exist, including India, are
connected to unfair trade practices raises an important issue that should not
be dismissed merely as a protectionist justification for higher tariffs. Forced
labour is a real problem in the twenty-first century, and its existence must be
confronted wherever it occurs. At the same time, the economic debate becomes
much more complicated when the concept of forced labour is expanded into a
broad justification for tariffs on an entire country. India has genuine
labour-market problems, including informal employment, weak enforcement of
labour standards, low collective bargaining power, inadequate social security
and, in some sectors and regions, bonded or forced labour. However, it would be
economically inaccurate to conclude that all Indian exports are cheap because
they are produced through forced labour. A more useful interpretation is that
the international trading system contains several different forms of
labour-cost advantage, ranging from legitimate productivity-based comparative
advantage to extremely low wages caused by labour-market weakness and, at the
worst end, actual coercion and forced labour. The challenge for both India and
the United States is therefore to distinguish among these categories rather
than treating them as identical.
Theories
Classical international trade theory, particularly the
theory of comparative advantage, argues that countries should specialize according
to their relative productivity and resource advantages. If India produces
pharmaceuticals, textiles, engineering goods, jewellery or information
technology at lower opportunity cost than the United States, trade can benefit
both countries. But modern trade theory also recognizes that the distribution
of trade gains depends on institutions, labour markets and bargaining power. A
worker may become more productive without receiving a proportional increase in
real wages if the labour market is highly informal, unions are weak, workers
have little bargaining power, or the gains from productivity are captured
disproportionately by employers and capital owners. This creates a distinction
between competitive advantage based on genuine productivity and competitive
advantage based on suppressed labour costs. The former can be economically
efficient; the latter can generate inequality and social costs. Forced labour
represents the most extreme version of labour-cost suppression because workers
are deprived of genuine freedom to choose employment. Thus, the U.S. argument
contains a legitimate principle: international trade should not reward
production based on coercion. But the principle becomes problematic if tariffs
are imposed broadly on countries without carefully identifying specific supply
chains, firms or products associated with forced labour.
History
The historical development of global capitalism
demonstrates that labour exploitation and international trade have often been
connected. From colonial plantation economies and indentured labour to modern
global supply chains, firms have repeatedly searched for locations where
production costs are low. The twentieth century saw the gradual development of
international labour standards, minimum wages, workplace safety laws and
restrictions on forced labour. Yet globalization created new complexities
because production became fragmented across multiple countries. A product sold
in the United States may contain raw materials from one country, components
from another and final assembly in a third. This makes it difficult to
determine where labour exploitation occurs and who is responsible. The
International Labour Organization has estimated that tens of millions of people
globally remain trapped in forced labour, demonstrating that the problem has
not disappeared with modernization. In this context, U.S. restrictions on goods
suspected of being produced through forced labour reflect a legitimate concern.
However, the historical lesson is also that labour standards are most
effectively improved through stronger institutions, transparency and
international cooperation rather than through indiscriminate trade barriers.
Analysis
The central economic question is whether India's
export competitiveness is primarily the result of higher productivity or
artificially depressed labour costs. The answer differs across sectors. India's
information technology and pharmaceutical industries, for example, compete
substantially through skilled labour, knowledge and productivity. Other
labour-intensive industries may benefit from comparatively low wages, but low
wages themselves are not evidence of forced labour. India has a large labour
supply, a substantial informal sector and significant differences in
productivity between formal and informal enterprises. These factors can keep
wages low even when workers are legally free to change jobs. Nevertheless, when
real wages fail to rise in line with productivity over an extended period, the
distribution of national income becomes increasingly unequal. If a worker
produces 10% more output but receives only a 2% increase in real wages, the
additional productivity gain is largely captured elsewhere. This may increase
corporate profits, returns to capital or consumer affordability, but it can
also weaken domestic demand because workers have insufficient purchasing power.
Therefore, the economic problem is not necessarily forced labour in the legal
sense; it may instead be a structural imbalance in bargaining power. That
distinction is essential. A country can simultaneously have genuine forced
labour in some pockets, widespread low-paid informal employment, and highly
productive globally competitive industries. These are separate phenomena and
should not be treated as one.
Data
The scale of the U.S.–India trade relationship
illustrates why the issue matters. According to U.S. trade data, the United
States recorded a goods trade deficit of approximately $58.2 billion with India
in 2025. At the same time, the broader U.S. economy recorded a total
goods-and-services trade deficit of about $901.5 billion, with U.S. exports of
roughly $3.43 trillion and imports of approximately $4.33 trillion. This means
that the bilateral deficit with India was significant but represented only a
small fraction of the overall U.S. external deficit. The numbers therefore
challenge the idea that Indian exports alone are responsible for the structural
imbalance in U.S. trade. More importantly, tariffs cannot automatically
eliminate a trade deficit if the underlying causes are macroeconomic, such as
differences between domestic saving and investment, fiscal deficits, exchange
rates, consumer demand and the international role of the dollar. If tariffs
reduce imports from India, U.S. buyers may simply shift toward Vietnam,
Bangladesh, Mexico or other suppliers. The bilateral deficit may move
geographically without disappearing. Similarly, if tariffs raise the prices of
imported inputs, American firms may face higher production costs, potentially
reducing their competitiveness and ultimately weakening U.S. exports. Thus, a
policy intended to protect American workers can produce contradictory results
if it increases the cost of intermediate goods used by American manufacturers.
Lower Real Wages and Unfair Trade
The strongest economic argument connecting India's
labour conditions with U.S. concerns is not that every low-wage Indian worker
is a victim of forced labour, but that weak labour bargaining power can create
a form of competitive advantage that resembles unfair trade when productivity
gains are not shared with workers. Suppose labour productivity rises by 50%
over a decade while real wages increase by only 10%. The cost advantage created
by the remaining productivity gain may increase exporters' competitiveness, but
the distributional consequences can be severe. Workers receive a smaller share
of national income, inequality rises, and domestic consumption may remain
weaker than the economy's productive capacity would justify. This is
particularly important for India because export-led growth based on low wages
is not necessarily sustainable. The long-term solution is to increase worker
productivity and wages together through better education, health, skills,
labour rights, formal employment and stronger social security. If productivity
increases while real wages remain suppressed, India risks becoming trapped in a
low-wage development model rather than moving toward a high-productivity,
high-income economy.
Lower U.S. Export Demand
The U.S. tariff argument also has an important
unintended consequence. Trade is not simply about what America imports; it is
also about what America exports. If the United States imposes tariffs on Indian
products, India may experience lower export demand, particularly in labour-intensive
sectors. But India could also respond through diversification, currency
adjustment, domestic demand or reciprocal trade measures. At the same time,
U.S. exporters may face retaliation or weaker foreign demand. The United States
is a major producer of aircraft, technology, financial services, machinery,
agricultural products and intellectual property-intensive services. If trading
partners reduce purchases of American products in response to tariffs, the U.S.
export sector can suffer. Furthermore, a stronger dollar resulting from global
demand for U.S. assets can make American exports relatively more expensive.
Therefore, protectionism can create a paradox: tariffs may reduce some imports
while simultaneously reducing export competitiveness. The result can be a
smaller volume of international trade without necessarily solving the
underlying trade imbalance.
The Real Policy Challenge
The most constructive response for India is neither to
deny the existence of forced labour nor to accept the idea that all Indian
exports are unfair. India should strengthen labour inspection, eliminate bonded
and forced labour, improve supply-chain traceability, expand formal employment
and ensure that productivity gains translate into rising real wages. Stronger labour
institutions can actually improve India's long-term export competitiveness
because they encourage firms to compete through technology, skills and
productivity rather than simply through cheap labour. The United States,
meanwhile, should target proven cases of forced labour with evidence-based
enforcement rather than using broad tariffs as a substitute for detailed
labour-rights policy. If the real objective is to eliminate forced labour,
targeted import bans and supply-chain due diligence are generally more precise
instruments than country-wide tariffs. Broad tariffs risk punishing legitimate
producers and workers alongside exploitative firms.
Conclusion
The U.S. accusation regarding forced labour deserves
serious attention because forced labour undeniably exists in the modern global
economy and represents a fundamental violation of human freedom. India, like
every major developing economy, must confront this problem directly and
transparently. However, forced labour should not be confused with every
instance of low wages, informal employment or weak labour bargaining power.
India's deeper challenge is that productivity gains have not always translated
proportionately into higher real wages, allowing employers and capital owners
to capture a large share of the benefits of economic growth. This can increase
inequality and create a perception of unfair competition, even when production
is not based on legally defined forced labour. The correct response is
therefore a combination of stronger labour rights, rising productivity, higher
real wages, better social protection and targeted enforcement against genuine
exploitation. For the United States, broad tariffs may reduce imports from
particular countries, but they cannot by themselves solve the structural causes
of the American trade deficit and may even weaken U.S. exports by raising input
costs and provoking retaliation. The deeper lesson is that fair trade requires
more than tariffs: it requires a global economic system in which productivity
gains are shared more equitably with workers, forced labour is eliminated, and
international competitiveness is built on innovation and human capital rather
than coercion or permanently suppressed wages.
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