USTR Initiates Probe Against India On Excess Capacity In Certain Sectors

Chennai: The United States Trade Representative has initiated investigations under Section 301 of the Trade Act of 1974, on excess capacity and production in certain manufacturing sectors in India. These sectors include textiles, health, construction goods, and automotive goods. The probe can lead to new tariffs and complicate the trade deal talks.

The USTR has initiated investigations under Section 301against 16 countries and economic blocs, including India. The investigation pertains to the acts, policies, and practices of certain economies relating to structural excess capacity and production in certain manufacturing sectors.

“Key trading partners have developed production capacity untethered from the incentives of domestic and global demand. This excess capacity leads to, among others, overproduction and large or persistent trade surpluses, as well as underutilized and unused capacity, in manufacturing sectors,” the USTR said.

The countries being probed include China, the European Union (EU), Singapore, Switzerland, Norway, Indonesia, Malaysia, Cambodia, Thailand, Korea, Vietnam, Taiwan, Bangladesh, Mexico, Japan, and India.

“Evidence of structural excess capacity and production exists for India. In 2025, India had a bilateral trade surplus with the United States of $58 billion. India’s global goods trade surplus sectors include textiles, health, construction goods, and automotive goods,” the USTR said.

“For example, evidence suggests the solar module sector is plagued by excess capacity, including that India's current module manufacturing is nearly triple the annual domestic demand. India also has created significant excess capacity in petrochemicals, steel, and other industries,” it added.

Section 301 of the Trade Act of 1974 is one of the most powerful instruments the United States uses to challenge what it considers unfair trade practices by other countries. Under this, the US government can respond with unilateral measures, which include imposing higher tariffs on imports, restricting certain services, or introducing other trade penalties. The provision has been used in several major disputes — most notably during trade tensions between the United States and China.

“While its impact on India's exports will be clear only after the investigation concludes, it seems the move is aimed at imposing a new tariff once the 150 days for the 10 per cent global tariff expires. This does not bode well for the Indian engineering sector, given that the 50 per cent tariff imposed by the Trump administration on items such as steel, aluminium, autos, and auto components remains in place,” said Pankaj Chadha, chairman, EEPC.

The US could have addressed trade-related issues as part of the ongoing trade talks. The probe can complicate the talks.

According to Ajay Sahai, director general, FIEO, the USTR’s Section 301 investigation should not have any immediate impact on Indian exports. “India and the United States are also engaged in discussions towards a Bilateral Trade Agreement, which provides an appropriate platform to address any emerging concerns. Nevertheless, we will continue to closely monitor the development,” he said.