India-US Trade Relations: Navigating the USTR Section 301 Investigation on Manufacturing Capacity

The United States Trade Representative (USTR) has scheduled a public hearing for May 8, 2026, to deliberate on Section 301 investigations concerning structural excess capacity in India’s manufacturing sectors. Section 301 of the US Trade Act of 1974 grants the US government the authority to investigate and respond to foreign trade practices that are deemed unreasonable or discriminatory and burden US commerce.

The investigation focuses on whether India’s industrial policies have led to manufacturing capacities that far exceed domestic demand, potentially resulting in the export of low-cost goods into global markets at prices that US industries find difficult to compete with. From the American perspective, such excess capacity, often perceived as being supported by state subsidies or non-market interventions, threatens the competitiveness of US domestic manufacturing.

For India, this hearing represents a significant diplomatic and economic challenge. Under the 'Make in India' and 'Atmanirbhar Bharat' initiatives, the Indian government has actively promoted domestic manufacturing through Production Linked Incentive (PLI) schemes and other fiscal measures. India maintains that these policies are essential for economic development, job creation, and integrating into global value chains, rather than being predatory trade practices. The government argues that building capacity is a prerequisite for becoming a global manufacturing hub and ensuring supply chain resilience.

The outcome of this hearing is a critical precursor to the resumption of formal bilateral trade deal negotiations. While India seeks greater market access for its services and agricultural products, the US remains focused on addressing trade imbalances and protecting its manufacturing base. This friction underscores the broader global trend where developed nations are increasingly using domestic trade laws to counter the industrial policies of emerging economies.