India defends trade practices as the US launches Section 301 investigations on 'structural excess capacity' and 'forced labour' in supply chains.

The USTR has launched Section 301 investigations against India and others on 'structural excess capacity' and forced labour; India argues that bilateral trade surpluses reflect the US dollar's reserve-currency role (approximately 56% of global forex reserves), not unfair practice.

India's core argument — that a bilateral trade surplus is an artefact of comparative advantage and dollar dominance — is analytically sound. With approximately 56% of global forex reserves held in dollars (per the source), the US enjoys an 'exorbitant privilege' that allows it to run persistent current-account deficits without the usual adjustment pressure. The policy risk for Indian banks is not the 301 investigations per se but the threatened restoration of 50% reciprocal tariffs (per the source), which would hit trade-finance books, export working-capital lines, and GIC Re's exposure in export credit insurance. The lesson from prior 301 episodes is that tariffs are rarely implemented at announced headline rates; however, the uncertainty itself tightens trade-finance margins and raises working-capital costs for exporters during the investigation period.

Section 301:

A US unilateral trade remedy under the Trade Act of 1974 that allows USTR to investigate and retaliate against unfair foreign trade practices.

Reserve currency:

A foreign currency held in significant quantities by central banks as part of their forex reserves — the US dollar is the dominant global reserve currency.

Trade deficit:

When a country's imports exceed its exports — typically measured on a bilateral or aggregate basis.

Comparative advantage:

The economic principle that countries gain from specialising in goods they can produce at relatively lower opportunity cost.

Reciprocal tariff:

A tariff imposed at the same rate (or a rate mirroring) the partner country's tariff on equivalent products.

Section 301 of the US Trade Act of 1974 has been a recurrent instrument of US trade diplomacy with India and other partners — used for intellectual property, digital services taxes, and, in 2026 investigations, on structural excess capacity and forced labour. India's response this time is distinctive in its explicit macroeconomic framing: pointing to the US dollar's dominance (approximately 56% of global forex reserves per the source) as the systemic reason for persistent US trade deficits. This moves the conversation from bilateral blame to systemic structure — relevant both for WTO-track engagement and for India's positioning in emerging multilateral trade debates.