Companies and Countries Question Legality of 301 Investigations, Offer Evidence Against Claims

In more than 800 comments in the structural excess capacity docket, some importers talked about how higher tariffs would hurt them; some domestic interests supported the tariffs; and some countries detailed all the ways their economies do not fit the outlines the USTR described.

The National Foreign Trade Council said persistent structural excess capacity does challenge competing industries in the U.S., but said that it is created by non-market policies such as subsidies, state-directed lending "and other forms of aggressive state intervention. These are longstanding and extraordinarily complex issues that require a coordinated approach in conjunction with key trade partners so that capacity is not shifted from market to market."

NFTC said just hiking tariffs won't fix overcapacity and will raise costs for U.S. businesses.

It also questioned the underpinning logic of the notice, saying that just having a trade surplus is not a sign of structural excess capacity. If a sector is globally competitive, it will export and produce beyond domestic demand, such as in U.S. agriculture.

"NFTC is concerned that if USTR relies on domestic production levels that exceed domestic consumption as evidence of conduct that is actionable under Section 301, there is a risk that other countries may apply that same standard to U.S. exports in sectors where U.S. producers dominate," the group said.

It also noted that a country as large and rich as the U.S. will consume more than smaller and poorer countries, which is a reason those countries would buy less from the U.S. than they sell to it.

However, if the administration does impose Section 301 tariffs, NFTC asked that the tariffs not apply to goods covered by Section 232, and that they follow the same carve-outs that Section 122 has. It also asked that there be a goods on the water delay and that duty drawback be allowed.

Both the National Association of Manufacturers and the U.S. Chamber of Commerce said China has distorting overcapacity, and all the other economies named in structural excess capacity Section 301 do not. Like NFTC, the Chamber said that trade balance and capacity utilization "do not provide a reasonable analytical basis for imposing tariffs or other trade restrictions under Section 301."

The libertarian Cato Institute also questioned the metrics, but explicitly said that using these reasons violates the law, because Section 301 requires that the USTR identify discriminatory policies and practices that burden U.S. commerce.

"As our comments make clear, USTR faces significant evidentiary and methodological challenges to demonstrate that remedial measures are necessary and lawful in this case," Cato wrote. To find that there is structural excess capacity in a certain country, and to impose tariffs to remedy it, would mean that USTR needs to provide long-term, industry-specific evidence of non-market government policies that led to excess production capacity, evidence of harm to the competing U.S. manufacturers "and causal links between these three elements."

Cato said that claims that manufacturing utilization has to be above 80% is "nonsensical, misleading, and thus unlawful," as each industry has different capacity patterns.

Even by that standard, many target countries don't fit, it noted. Switzerland, the EU, Norway and Malaysia have higher manufacturing capacity utilization than the U.S.; China and Mexico are within two percentage points of the U.S. rate; and only Thailand and Indonesia "had capacity utilization rates that could be considered low by U.S. standards."

It also said that USTR recognizes the law requires USTR to link government policies to overcapacity, since it lists the types of policy interventions that lead to the problem, "such as subsidies, currency intervention, sterilization of foreign exchange flows, and cash incentives for exporting." To justify action, USTR "must identify these kinds of policies, not simply point to random government interventions that have little, if anything, to do with the economic data on the record."

When identifying the burden in the U.S., USTR should point to "reduced sales, exports, production, employment, productivity, or profitability in a specific industry or firm over the duration of the period examined. It cannot be simple assertions of industry harm based on aggregate national manufacturing data."

Analysts talking about the 301 investigations on a Washington International Trade Association webinar last week noted that the Chamber said only China is the source of trade-distorting overcapacity. Joe Damond, from the Center for Strategic and International Studies, said the Chamber said that even when looking at China, "you have to be nuanced and look at sector by sector. You don't want to impose just a blanket tariff necessarily on all sectors."

Progressive Policy Institute Vice President Ed Gresser said the investigations are just a way of justifying the tariffs the administration wants to have. Gresser, who worked in the economics department at USTR when it wrote the Section 301 investigation on China in the first Trump term, said these investigations "are not really meant to address policies, acts and practices of foreign countries that are burdening U.S. commerce."

In the notice, he said, "they also made a point of saying Bangladesh is producing too much cement. And you know, we don't export cement to Bangladesh. We don't buy it from Bangladesh. We don't compete in third markets with Bangladesh. I'm very puzzled by a lot of these things."

The CEO of Learning Resources, the company that led the successful lawsuit against the International Emergency Economic Powers Act tariffs, said it's clear that this investigation was triggered by Learning Resources' victory in court, given that President Donald Trump, hours after the decision, said he would replace the billions of revenue from IEEPA with tariffs under other laws, including Section 301.

"This strongly suggests that the decision to impose these taxes has already been made and precedes this investigation, clearly not the intent of Congress in granting limited Sec. 301 rights to impose tariffs. To impose tariffs under these conditions would make a sham of Sec. 301," wrote Richard Woldenberg.

In the toy, pet and educational goods markets, there are family-owned businesses competing on price and quality, and he said he sees no evidence of interventions such as subsidized lending, suppressed wages or others listed by USTR.

"Labor rates have steadily risen globally, and overseas labor rates now approach domestic minimum wages in some cases. As a result of rising labor rates (often because of government-mandated increases in wages or reductions in labor hours) and persistent labor shortages, our factory partners heavily invest in automation technology today, thus reducing labor as a manufacturing cost component," he wrote.

However, there were broad industry trade groups that said investigations are needed to combat abuses. The Coalition for a Prosperous America said that it submitted one comment because "Structural excess capacity and forced labor are complementary mechanisms within the same production model: state-directed overproduction generates the capacity, and coerced or suppressed labor costs keep it globally competitive."

The group said the solution is a managed trade framework, because higher tariffs "have proved insufficient," and gave the example of a 100% Section 301 tariff on Chinese hypodermic syringes, which has not changed trade flows.

"The U.S. goods trade deficit reached a record $1.3 trillion in 2025 despite the highest effective tariff rate in generations," the CPA wrote.

"Vietnam and Mexico function primarily as final-assembly and transshipment hubs for Chinese-origin value. Vietnam’s $178 billion bilateral surplus with the United States is driven substantially by goods whose value is created in China and routed through Vietnamese assembly. Mexico’s $197 billion bilateral surplus increasingly reflects a similar dynamic in automotive and electronics sectors," the group asserted.

It said that Indonesia, Malaysia, Cambodia and Thailand also process Chinese inputs into finished goods that are exported to the U.S., such as solar panels and garments, both containing Xinjiang labor.

So, the CPA recommends, the U.S. should combine tariff rate quotas and import licensing "with a tiered tariff framework on a product-by-product basis," with the import licenses only allowing goods to enter if the importer shows the goods were not made with prohibited subsidies or forced labor. It said solar and cotton-containing textiles should be subject to such licenses.

"Licensing addresses the traceability problem that undermines both UFLPA enforcement and tariff administration: it shifts the compliance burden onto the importer and creates a documentary record that CBP can audit," the group wrote.

It said that Switzerland, Germany, Japan, Korea and Taiwan should have a more generous TRQ than other countries because their trade surpluses reflect private-sector comparative advantage.

Jason Miller, a supply chain professor at Michigan State University, questioned USTR's notice, which said Germany had excess capacity in machinery, electronic equipment, pharmaceutical products, chemicals, and other sectors. “At the same time, capacity utilization rates in these sectors as of January 2026, such as chemicals (72.7 percent), have reached low levels,” USTR wrote.

He said it's not true that German chemical manufacturing has excess structural capacity, and a utilization rate cannot be assessed by looking at the number at a single point in time.

"As can be seen, German capacity utilization as recently as late 2021 was near the highest levels that it has been at over the last 22 years. Capacity utilization fell sharply following Russia’s invasion of Ukraine in early 2022, which resulted in substantial increases in energy costs, especially for German chemical makers that relied on Russian natural gas," Miller wrote. "As such, there is no basis for tariffing German chemicals, contra the USTR’s claim."

Countries also questioned both the facts and the logic in the initiation notice, with some saying it does not follow the law.

India focused on the Section 301 language, and said the initiation notice falls short because it "is premised on aggregate macroeconomic indicators, without identifying any specific act, policy or practice of the Government of India that could be considered “unreasonable or discriminatory” and that “burdens or restricts United States commerce” as required.

It said there also is no evidence or convincing rationale in it that India has structural excess capacity that led to a trade surplus.

"Accordingly, the Initiation Notice is legally defective," India wrote.

India noted that its exports are only 3% of U.S. imports, and that its export-to-GDP ratio of 12% shows that most production is for domestic demand.

Mexico said that if there are trade restrictions on Mexico as a result of the 301 investigation, it could increase U.S. manufacturers' production costs, risk component shortages, lower competitiveness and reduce output and jobs. Mexico noted that about 25% of U.S.-Mexico trade is within a company doing production in both countries. More than 60% of Mexican imports from the U.S. are used for manufacturing in Mexico; almost 60% of Mexican exports to the U.S. are used in further manufacturing in the U.S.

Mexico also pointed out that the U.S. pays more subsidies to its producers than Mexico does to its producers. It also shared a chart of its production and capacity utilization from 2023 to 2026. "The data does not demonstrate a continuous decline in the rate of utilization capacity expected in case of overproduction. Instead, it shows that fluctuations in Mexico’s manufacturing sector are cyclical and demand-driven."

Norway submitted a 118-page argument against USTR's claims, which mentioned petroleum products, machinery and electronic equipment and seafood.

"At the outset, Norway wishes to clarify USTR’s claim that seafood exports from Norway were at a 'record high' in 2025. It is true that Norway’s exports of seafood in terms of value increased by 3.3 percent as compared to 2024. However, in volume terms, Norwegian seafood exports have showed a slight decline from 2022 onwards," so there isn't an increase in production.

"Norway is a country with a small population (5.6 million) and a small economy (around USD 500 billion nominal GDP) that, therefore, has a very limited capacity indeed to burden the commerce of the United States," the submission argued. "In any event, as set out in these comments, there is no indication that Norway’s economy, including any of the expressly identified sectors, exhibits excess capacity and production untethered from demand."

Switzerland wrote that it "strongly rejects the allegations made in the initiation notice and maintains that its acts, policies, and practices do not contribute to overcapacities in the industrial sector and do not burden or restrict U.S. commerce."

The country noted that more than 99% of U.S. exports enter Switzerland duty-free, that it has no tariffs on any industrial goods, and that its trade-weighted average most-favored nation tariff rate is around 1%, making it one of the most open economies in the world.

"In the year 2024, the Swiss trade surplus was 8.21 billion USD. In the years 2022 and 2023, the surplus was 1.52 [billion] and 1.56 billion USD. This reflects highly integrated industries, such as pharmaceutical and chemical products, machinery, and medical devices, where transatlantic value chains are deeply integrated rather than providing one-sided trade advantages or policy distortions," Switzerland wrote.

It said fluctuations in the trade balance are driven by gold trade. "Gold-driven spikes reflect changes in global economic and financial uncertainty, not changes in Swiss economic fundamentals. The surge in Swiss gold exports to the United States in 2024 and 2025 was driven by a changing U.S. trade policy environment and safe-haven demand, not by Swiss industrial policy."

"Switzerland does not pursue a state-directed industrial policy aimed at expanding production capacity or export performance. There are no government-imposed production targets, no sector-specific capacity expansion programs, and no state-led strategies designed to increase output in key industries. Investment and production decisions are taken by private firms based on market signals and global demand conditions," the country wrote.

It also noted its capacity utilization was 78.6% at the end of 2025, slightly higher than the U.S., and over time, it has been stable around 80%.

South Korea argued that the USTR should consider that Korea has a market-based manufacturing economy, that its industries are complementary to U.S. industries, and that Korea is significantly expanding its investment in the U.S. "Korea respectfully requests that the USTR conclude, with regard to Korea’s acts, policies or practices concerning excess capacity and production, that action by the United States against Korea is neither appropriate nor necessary."

Thailand wrote that its exports are driven by comparative advantage. "Thai exports primarily consist of upstream and intermediate goods that support U.S. manufacturing. As such, Thai exports do not negatively impact U.S. economic growth, wages, or pricing. Instead, they contribute positively to the U.S. economy by enhancing supply chain resilience and contributing to competitive pricing."

It said that if USTR decided to act after concluding its investigation, "any such measures should be narrowly tailored, grounded in substantial evidence, and proportionate to the record."

Cambodia acknowledged that it doesn't produce textiles and raw materials that are used to sew garments, make shoes and travel goods. It didn't mention China, the source of most of those inputs, which is part of the argument that Cambodia is contributing to distortions.

However, it did provide extensive evidence that Cambodia does not subsidize its local factories. It said its only support is a three-year income tax exemption, and that the World Trade Organization said that is appropriate as Cambodia seeks to develop, and does not distort trade.

Many countries that are subject to the forced labor investigation, but not the excess capacity investigation, also made submissions. There were about 450 comments in the forced labor investigation, which targets 60 countries. Most do not have a ban on goods made with forced labor; Canada, which does, was accused of not adequately enforcing its law.

Brazil detailed its broad domestic protections against exploitation of workers, considered one of the most comprehensive in the world. It also wrote, "Our Congress is considering a law on a ban on goods made with forced labor, but there is no international standard on customs detention, scope of liability and presumptions of contamination across international supply chains, and who carries the burden of proof."

So, it argued, to say that Brazil's approach is not the same as the U.S. one would be impinging on its sovereignty without justification.

Canada homed in on the consultation requirement in Section 301 before tariffs are applied. "I welcome your offer of consultations and confirm Canada’s readiness to engage promptly and substantively with the United States. Canada and the United States share a strong interest in combating forced labour and protecting supply chain integrity," Trade Minister Dominic LeBlanc wrote. "We have worked closely together on these issues, including through cooperation between our border agencies and through ongoing technical discussions under CUSMA, and we see that cooperation as a strong basis for these consultations."

He said that Canada is ready to review the two countries' respective approaches to preventing goods made with forced labor from entering their countries, "and identifying concrete opportunities to strengthen implementation, enforcement, and information-sharing."