Tax Insights: USTR initiates new section 301 investigations focused on structural excess capacity and forced labor

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Issue 2026-13

In brief

What happened? 

In March 2026, the US Trade Representative (USTR), Ambassador Jamieson Greer, launched 76 new investigations under section 301 of the US Trade Act of 1974, which authorizes the USTR to examine whether the acts, policies or practices of foreign economies are unreasonable or discriminatory and burden or restrict US commerce. The investigations focus on:

• structural excess capacity and production in the manufacturing sectors¹ – whether the acts, policies and practices of 16 economies (which excludes Canada, but includes several of Canada’s key trading partners) have contributed to this excess capacity and production, which the US claims to have displaced US industry
• forced labour² – whether 60 economies, including Canada, have failed to adopt and effectively enforce prohibitions on the importation of goods produced with forced labour  

Why is it relevant?

If these investigations conclude that there are unfair trading practices that negatively affect US commerce, the USTR may recommend imposing additional section 301 duties, sector‑specific tariffs, or other trade measures on imports from any of the economies under investigation. Accordingly, Canadian importers and exporters could face increased trade compliance risks and potential cost impacts because:

• Canada is named as an investigated economy in the forced labour investigation, and
• many Canadian supply chains rely on goods sourced from economies covered by one or both sets of investigations

Actions to consider

Affected Canadian businesses should review supply chains to identify products from the economies under investigation and assess how potential new section 301 measures may affect costs, transfer pricing and customer pricing. They should evaluate the robustness of existing forced labour due diligence frameworks and consider submitting written comments to the USTR. Written submissions and hearing requests for both investigations are due by April 15, 2026.

In detail

Structural excess capacity and production in manufacturing sectors

On March 11, 2026, the USTR launched investigations into the acts, policies and practices of 16 economies alleged to have contributed to structural excess capacity and production in certain manufacturing sectors.

The USTR defines structural excess capacity as manufacturing capacity that persistently exceeds domestic and global demand. According to the USTR, these conditions are often sustained by government interventions or policy support and can result in overproduction, trade surpluses and underutilized facilities. These dynamics are viewed as potentially undermining US manufacturing competitiveness and efforts to re‑shore supply chains. The USTR states that, over the past fifteen years, US manufacturing capacity utilization peaked at 79.9% during President Trump’s first term and declined to a low of 75.2% in November 2024.

Economies under investigation

The 16 economies subject to this investigation are Bangladesh, Cambodia, China, the European Union, India, Indonesia, Japan, Korea, Malaysia, Mexico, Norway, Singapore, Switzerland, Taiwan, Thailand and Vietnam.

Manufacturing sectors identified as a concern

The USTR has identified a wide range of manufacturing sectors that are affected by structural excess capacity and production. These include:

• aluminum and steel
• automobiles, ships and transportation equipment
• batteries, electronics, energy goods, robotics, satellites, semi-conductors and solar modules
• cement, chemicals, glass, paper and plastics
• machine tools and machinery
• processed food and beverages

In addition, the USTR has identified country‑specific areas of concern, such as in:

• China, for electronic equipment, machinery, automobiles, iron and steel, footwear and shipbuilding
• Japan, for automobiles, auto parts, and optical and medical apparatuses
• Mexico, for automobiles, construction, health, and food and beverages
• Korea, for electronic equipment, automobiles, steel and shipbuilding

The USTR also noted that Vietnam serves as a hub for the final assembly of goods before export – a contributing factor to Vietnam’s trade surplus with the United States.   

Policy interventions identified as a concern

The USTR alleges that structural excess capacity could be driven by a range of government interventions. These include:

• subsidies that promote production and exports without regard to market‑based supply, demand or investment signals
• the suppression of domestic wages
• non‑commercial conduct by state‑owned enterprises and sustained market access barriers
• inadequate or weakly enforced environmental or labour protections
• subsidized lending and financial repression or currency‑related practices

Failures to take action on forced labour

On March 12, 2026, the USTR launched another set of investigations into 60 economies for their alleged failure to take action on forced labour. US law prohibits the importation of goods mined, produced or manufactured wholly or in part with forced labour, and international law broadly recognizes that forced labour should not be tolerated.

According to the USTR, none of the 60 economies subject to these investigations appear to have both adopted and effectively enforced a prohibition on the importation of goods produced with forced labour.

Economies under investigation

The 60 economies subject to this investigation collectively accounted for more than 99% of US imports in 2024. In addition to Canada, these economies include:

• Algeria, Angola, Argentina, Australia, The Bahamas, Bahrain, Bangladesh and Brazil
• Cambodia, Chile, China, Colombia, Costa Rica and the Dominican Republic
• Ecuador, Egypt, El Salvador, the European Union, Guatemala, Guyana, Honduras and Hong Kong
• India, Indonesia, Iraq, Israel, Japan, Jordan, Kazakhstan, Kuwait and Libya
• Malaysia, Mexico, Morocco, New Zealand, Nicaragua, Nigeria and Norway
• Oman, Pakistan, Peru, the Philippines, Qatar and Russia
• Saudi Arabia, Singapore, South Africa, South Korea, Sri Lanka and Switzerland
• Taiwan, Thailand, Trinidad and Tobago, and Türkiye
• the United Arab Emirates, the United Kingdom, Uruguay, Venezuela and Vietnam

Nature of the concern

The USTR asserts that the use of forced labour creates artificially low labour costs, allowing goods to be sold at prices that would not otherwise be possible, which places US workers and exporters at a competitive disadvantage. The investigations will focus on whether foreign governments have adopted forced labour import prohibitions, or are in the process of doing so, and whether any of these measures are effectively enforced.

Key overlapping economies

All 16 economies subject to the excess capacity investigation are also named in the forced labour investigation. Businesses operating in supply chains that include these economies face compounded exposure across both sets of investigations simultaneously.

Procedural timelines

Both investigations follow a similar procedural framework. This process includes mandatory consultations with the economies under investigation, opportunities for public comment and public hearings. Key procedural milestones are summarized below:

What businesses need to consider

Canadian businesses with cross‑border supply chains, manufacturing operations, or sourcing relationships involving any of the identified economies should consider:

• mapping supply chains against the investigated economies to identify affected products and sectors, specifically focusing on automotive, steel, aluminum, semi-conductors, chemicals, plastics, electronics and solar modules
• modelling the potential net duty impact of new section 301 measures and updating landed‑cost, transfer pricing and customer pricing models accordingly
• reviewing commercial agreements (including incoterms, duty‑sharing provisions and pricing adjustment clauses) to determine which party would bear the cost of any new section 301 duties
• evaluating supply‑chain mitigation strategies, such as tariff classification planning, origin planning, free trade agreement utilization and customs valuation strategies
• assessing the robustness of forced labour due diligence frameworks, particularly in light of the USTR’s stated view that none of the investigated economies has yet both adopted and effectively enforced a forced labour import prohibition
• submitting written comments to the USTR by April 15, 2026, to ensure business interests are reflected in the investigative record
• monitoring USTR developments, as both investigations are proceeding on what the USTR has described as an accelerated timeframe

The takeaway

The March 2026 section 301 investigations represent one of the most expansive uses of US trade law in recent history, simultaneously targeting more than 60 trading partners across manufacturing capacity and forced labour practices.³  For Canadian businesses, the risk is two‑fold: Canada is named as an investigated economy in the forced labour investigation, while many Canadian supply chains rely on economies subject to the excess capacity investigation. This creates immediate and potentially compounding exposure for Canadian businesses and US importers.