The United States is set to expand its trade conflict with a wide range of countries by using Section 301 to charge “structural excess capacity,” which it says is driven by government intervention. China is among the targets, according to Bloomberg:

The US is set to impose a 7.5% tariff on Chinese goods over allegations of excess manufacturing capacity before a planned summit between Xi Jinping and Donald Trump next month, according to people familiar with the matter. The move would restore Trump’s second-term duties on China to around 20%, a level Beijing has previously said is consistent with its trade truce with Washington. Those come on top of other levies imposed during Trump’s first term and extended during the Biden administration.

The US is set to impose a 7.5% tariff on Chinese goods over allegations of excess manufacturing capacity before a planned summit between Xi Jinping and Donald Trump next month, according to people familiar with the matter. The move would restore Trump’s second-term duties on China to around 20%, a level Beijing has previously said is consistent with its trade truce with Washington. Those come on top of other levies imposed during Trump’s first term and extended during the Biden administration.

The development was foreshadowed in Brookings’ “After IEEPA,” published in March.

Sixteen investigations announced March 11 focus on what the administration calls “structural excess capacity.” USTR contends that certain countries—including China, the European Union, Japan, Mexico, India, Switzerland, Norway, and others—maintain government policies such as subsidies, state financing, and industrial planning that allow factories to keep producing even when market conditions do not support it.

Sixteen investigations announced March 11 focus on what the administration calls “structural excess capacity.” USTR contends that certain countries—including China, the European Union, Japan, Mexico, India, Switzerland, Norway, and others—maintain government policies such as subsidies, state financing, and industrial planning that allow factories to keep producing even when market conditions do not support it.

The term “excess capacity” is not one the author recalls from international trade courses, undergraduate or graduate. Looking for a reference in a standard textbook produced no match.

That does not mean the phrase has no place in economics. In monopolistic competition models, excess capacity appears explicitly, although those discussions were originally framed in a domestic, closed-economy setting.

If “excess capacity” simply means a country is not producing as much as it could, the question becomes where the threshold lies. In the Federal Register notice on the Section 301 investigations, the answer appears to be 80%.

In 2024, global manufacturing generated $16.6 trillion dollars in economic output, up from $16.4 trillion in 2023, according to World Bank data. Nonetheless, according to U.S. government estimates, global manufacturing capacity utilization remains between 75.0 and 75.9 percent, below healthy utilization rates for many sectors of approximately 80 percent.2 This is an indication that, for manufactured goods, although global production is expanding, underlying global supply exceeds underlying global demand.

In 2024, global manufacturing generated $16.6 trillion dollars in economic output, up from $16.4 trillion in 2023, according to World Bank data. Nonetheless, according to U.S. government estimates, global manufacturing capacity utilization remains between 75.0 and 75.9 percent, below healthy utilization rates for many sectors of approximately 80 percent.2 This is an indication that, for manufactured goods, although global production is expanding, underlying global supply exceeds underlying global demand.

The 80% benchmark appears to be borrowed from the excess-capacity literature on steel.

The issue then moves from trade theory to trade law, which are not always aligned, as anti-dumping law illustrates. USTR also appears to be defining structural excess capacity differently from the way it described overcapacity in the 2025 National Trade Estimate Report.

As Global Trade Alert notes:

The definitional scope is measurable. In the 2025 National Trade Estimate Report, published a year earlier, USTR discussed overcapacity for two economies : China (steel, aluminium, solar, electric vehicles, batteries) and Indonesia (mineral ore export bans contributing to steel overcapacity). The Section 301 announcement applies ‘structural excess capacity’ to 16 economies. USTR’s Background section defines two analytical layers: evidentiary indicators (trade surpluses, low capacity utilisation, sector overcapacity, unprofitable firms) and seven policy interventions said to cause them (production subsidies, wage suppression, state-owned enterprise activities, market access barriers, lax environmental or labour protection, subsidised lending, and currency manipulation). Across all 16 economies, the announcement documents 33 evidentiary indicators but cites only seven specific policy interventions. For ten economies, it identifies symptoms but leaves the causes subject to investigation. Three economies illustrate the breadth of the definition. Switzerland is cited for currency intervention and sterilisation of foreign exchange inflows, with no industrial overcapacity evidence and no policy interventions identified beyond currency practices. The NTE’s Switzerland chapter discusses tariffs, agricultural subsidies, sanitary measures, and data localisation; it contains no mention of overcapacity, currency manipulation, or trade surplus as a concern. Norway is cited for recycling oil revenues through its sovereign wealth fund rather than its domestic currency; its bilateral surplus with the United States is $1.9 billion. The NTE’s Norway chapter contains no reference to currency practices, sovereign wealth operations, or overcapacity. Japan runs a global goods trade deficit of roughly $36 billion but is included on the basis of its bilateral surplus and the share of unprofitable firms in its economy. Divergence from the National Trade Estimate Report The S301 and the NTE diverge significantly. A systematic review of the 2025 NTE across all 16 targeted economy chapters finds that the S301’s core categories scarcely appear in the NTE’s analytical vocabulary. Neither currency intervention, undervaluation, nor zombie firms feature as concerns anywhere in the document. ‘Overcapacity’ is confined almost entirely to the China section and one brief Indonesia reference. The divergence extends to policy causes: the NTE documents instances of USTR’s own seven policy interventions far more extensively than the S301 does. Market access barriers, for instance, are documented in the NTE for 15 of the 16 targeted economies; the S301 does not cite market access barriers as a cause of overcapacity for any of them, though some country sections describe practices (such as Indonesia’s export restrictions) that could plausibly be characterised under that heading. The NTE is a document about the causes of trade distortion. The S301, at this stage, documents indicators and leaves most causes unspecified. The definitional scope is measurable. In the 2025 National Trade Estimate Report, published a year earlier, USTR discussed overcapacity for two economies : China (steel, aluminium, solar, electric vehicles, batteries) and Indonesia (mineral ore export bans contributing to steel overcapacity). The Section 301 announcement applies ‘structural excess capacity’ to 16 economies. USTR’s Background section defines two analytical layers: evidentiary indicators (trade surpluses, low capacity utilisation, sector overcapacity, unprofitable firms) and seven policy interventions said to cause them (production subsidies, wage suppression, state-owned enterprise activities, market access barriers, lax environmental or labour protection, subsidised lending, and currency manipulation). Across all 16 economies, the announcement documents 33 evidentiary indicators but cites only seven specific policy interventions. For ten economies, it identifies symptoms but leaves the causes subject to investigation. Three economies illustrate the breadth of the definition. Switzerland is cited for currency intervention and sterilisation of foreign exchange inflows, with no industrial overcapacity evidence and no policy interventions identified beyond currency practices. The NTE’s Switzerland chapter discusses tariffs, agricultural subsidies, sanitary measures, and data localisation; it contains no mention of overcapacity, currency manipulation, or trade surplus as a concern. Norway is cited for recycling oil revenues through its sovereign wealth fund rather than its domestic currency; its bilateral surplus with the United States is $1.9 billion. The NTE’s Norway chapter contains no reference to currency practices, sovereign wealth operations, or overcapacity. Japan runs a global goods trade deficit of roughly $36 billion but is included on the basis of its bilateral surplus and the share of unprofitable firms in its economy. Divergence from the National Trade Estimate Report The S301 and the NTE diverge significantly. A systematic review of the 2025 NTE across all 16 targeted economy chapters finds that the S301’s core categories scarcely appear in the NTE’s analytical vocabulary. Neither currency intervention, undervaluation, nor zombie firms feature as concerns anywhere in the document. ‘Overcapacity’ is confined almost entirely to the China section and one brief Indonesia reference. The divergence extends to policy causes: the NTE documents instances of USTR’s own seven policy interventions far more extensively than the S301 does. Market access barriers, for instance, are documented in the NTE for 15 of the 16 targeted economies; the S301 does not cite market access barriers as a cause of overcapacity for any of them, though some country sections describe practices (such as Indonesia’s export restrictions) that could plausibly be characterised under that heading. The NTE is a document about the causes of trade distortion. The S301, at this stage, documents indicators and leaves most causes unspecified.

It is also worth noting that there are several industries in which capacity utilization is below 80% and exports.

More discussion from Evenett is available here, in the context of the United States and China.