'US Section 301 Probe Could Lead to Penalty Tariffs Above 10%’: Vinnie Mehta

A new US trade probe could affect India’s auto component exports, as authorities review concerns around overcapacity and government support in manufacturing. Vinnie Mehta, Director General of ACMA said. 

“The US has started an investigation under Chapter 301. They have identified 16 countries, including India, on the premise that these countries have overcapacity and that their industries are subsidised by governments. If that is proven, they can put a tariff over and above the 10% as a penal rate,” said Vinnie Mehta.

Under Section 301 of the Trade Act of 1974, the United States can investigate trade practices it considers unfair and impose unilateral tariffs or restrictions if they are found to harm domestic industry. In this case, the investigation is examining whether excess manufacturing capacity, supported by state incentives, is leading to market distortions and pricing pressures in global trade.

The development comes at a time when the Indian auto component industry has just closed FY25 on a strong note. Industry turnover was close to $80 billion, with exports at around $23 billion and imports at a comparable level, resulting in a marginal trade surplus. Supplies to OEMs continued to dominate revenues, while the aftermarket contributed roughly $11 billion, supported by a steadily expanding vehicle parc.

The momentum extended well into FY26. In the first three quarters, the industry maintained steady growth, with exports broadly stable year on year despite emerging global trade uncertainties toward the latter part of the fiscal. Strong domestic demand across passenger vehicles, two-wheelers, and commercial vehicles helped offset pressure on overseas shipments, keeping overall industry performance resilient.

It is against this backdrop, and as FY26 draws to a close, that the Section 301 investigation introduces a new layer of uncertainty.

Duties on several imported auto components into the US currently stand at about 10% following a phase of volatility, legal challenges, and recalibration of earlier tariff measures. The Section 301 route now creates the possibility of additional tariffs being imposed over and above this baseline, effectively turning them into targeted penalty duties.

The investigation, initiated by the Office of the United States Trade Representative, spans multiple sectors, including automotive, electronics, semiconductors, and clean energy. It reflects a broader shift in US trade policy, expanding scrutiny beyond individual countries to systemic concerns such as industrial overcapacity and subsidy-led manufacturing.

For India’s automotive ecosystem, the implications are significant. The US remains a key export destination, accounting for roughly 25–30% of India’s auto component exports, particularly in high-value engineering components and the aftermarket segment. Indian suppliers have also been scaling capabilities in EV components, electronics, and software-driven systems, aligning with evolving global supply chains.

In the near term, the impact of any tariff escalation may remain limited. Automotive supply chains are characterised by long validation cycles and deeply embedded supplier relationships, making immediate sourcing shifts difficult. Export trends in recent months have also been supported by advance shipments ahead of potential tariff changes, along with limited short-term alternatives for buyers.

The medium-term impact, however, could be more structural. As new vehicle programmes are planned and sourcing strategies are reassessed, tariff exposure is likely to become a key decision factor. Suppliers from regions with lower tariff risks or more favourable trade arrangements may gain an advantage, potentially affecting India’s export growth trajectory.

The investigation remains at an early stage, with industry bodies and the government expected to submit responses as part of the consultation process. Such processes typically take several months before any trade action is finalised.

For now, strong domestic demand continues to provide a cushion. However, the Section 301 investigation signals a shift in the external operating environment. What has been a growth-led phase for India’s auto component industry could increasingly be shaped by global trade policy, with tariff exposure emerging as a critical determinant of competitiveness in the next phase of export growth.