‘Excess Capacity’ as Reason to Tariff Sparks Support, Skepticism

Countries generating trade surpluses through their ability to produce more than the market demands have surfaced as potential tariffs targets by the Trump administration.

The trade investigation into what the administration is calling “excess capacity” is garnering support from some industries eager to see tariffs applied to what they described as unfair trade practices—along with a warning from others that the investigation shouldn’t conflate problematic policies with the basics of trade itself.

The US Trade Representative has received more than 800 letters as part of its probe into whether 15 jurisdictions plus the EU should face consequences for their economic policies. It’s also holding hearings starting Tuesday.

“The notice’s definition of excess capacity, followed to its conclusion, is indistinguishable from a description of trade,” the American Enterprise Institute wrote.

Business Roundtable, a group of more than 200 CEOs of major US companies, said it supports the administration using Section 301 where appropriate. But like AEI, it pushed back on the idea that a trade surplus necessarily signals unfair trade practices.

The group cautioned that tariffs should only follow a thorough analysis of each economy on the list, “rather than starting with the premise that a trade surplus is necessarily indicative of excess capacity.”

President Donald Trump is looking to replace the widespread global tariffs struck down by the Supreme Court in February. Administration officials have said new tariffs could be in place by July, when a temporary 10% global tariff is set to expire.

After the court said Trump didn’t have tariff authority under an emergency powers law, the administration is turning to a more established authority—Section 301 of the Trade Act of 1974, which lets the president respond with tools including tariffs when another country’s acts or policies present an unreasonable or discriminatory burden to US business.

Alongside the excess capacity investigations, the administration is also looking at Section 301 actions against 59 jurisdictions plus the EU based on their failures to effectively enforce a ban on products made with forced labor.

‘Not Evidence of Wrongdoing’

Several US sectors also run global trade surpluses, including energy, aerospace and agriculture, Business Roundtable said. “Focusing disproportionately on trade surpluses risks inviting reciprocal measures that could impact these same US export sectors,” it warned.

AEI pointed to the Section 301 notice’s assertion that when one country produces a lot of something, less is manufactured elsewhere in the global supply chain, as “simply the accounting of trade.”

“That arithmetic is not evidence of wrongdoing,” the group wrote. “Taken seriously, that logic would treat trade itself, rather than foreign governments’ conduct, as the object of Section 301 scrutiny.”

Learning Resources—the educational toy company that led the legal fight that overturned Trump’s emergency powers tariffs—pointed to a press conference held hours after the court decision in which Trump said he was initiating new Section 301 investigations to replace the emergency powers tariffs.

“This strongly suggests that the decision to impose these taxes has already been made and precedes this investigation, clearly not the intent of Congress,” the company wrote. “To impose tariffs under these conditions would make a sham of Sec. 301.”

The company also said that while overcapacity concerns might apply to commodities, the concept isn’t applicable to all markets.

Meanwhile, the governments of countries including Mexico, Norway, and Malaysia pushed back on the excess capacity allegations.

Carve-Outs and Stacked Tariffs

Some industries and companies asked the administration to consider the effects of multiple tariffs stacked on the same imports, or asked to just be left out of any trade action.

Hyundai Motor Group pointed to existing sectoral tariffs under Section 232 of the Trade Expansion Act of 1962. Layering multiple tariffs “would raise marginal production costs for US facilities without creating additional domestic capacity, employment, or supply-chain resilience,” the company wrote.

Caterpillar asked USTR to exclude from potential new tariffs anything already subject to 232 tariffs—including products made from steel and aluminum, as well as heavy industrial products—and for an exemption for goods qualifying under the US-Mexico-Canada trade agreement. The company also called for an exclusions process for products not sufficiently available domestically, and for those that are needed for the administration’s strategic goals.

The Motorcycle Industry Council said its industry isn’t subject to the problems identified in the investigation. “Powersports products do not exhibit the hallmarks of structural excess capacity,” it wrote.

Trek Bicycles wrote that new tariffs would deal a heavy blow to the already struggling US bicycle industry, which is facing challenges “rooted in demand volatility, not oversupply from third countries.” The industry is already under a high tariff burden, it added.

And canned tuna company Chicken of the Sea asked for imports of tuna loins to be excluded from any 301 tariffs because they contribute to jobs at US canning operations and are “not a source of foreign excess capacity displacing domestic production.”

Asking for Tariffs

Eastman Kodak pointed to what it described as practices by China leading to inexpensive imports of aluminum lithographic printing plates that “create grave risks to Kodak’s continued operation of, and the well-paying manufacturing jobs” at a facility it runs in Georgia.

The company urged the administration to tariff aluminum lithographic printing plates, including from countries besides China. But it also warned that tariffs on those plates “must be assessed cumulatively” with other tariff measures that apply, including under Section 232.

Alcoa Corp. called for USTR to “closely evaluate dynamics in China, India, and Mexico to identify opportunities to protect the US value chain,” adding that the EU and Norway don’t merit further investigation.

And tire manufacturer Michelin North America urged the administration “to take action against the policies and practices of Cambodia and China that are resulting in overcapacity and export dependency that result in unfair and unbalanced trade in light vehicle, truck, and bus tires manufacturing.”

The hearings will run through Friday.