Trade War Fallout: Chinese Firms Now Rely on Indian Gateways

As global trade realigns in the wake of enduring US-China tensions, an unlikely but economically significant trend has emerged: Chinese exporters are increasingly partnering with Indian firms to fulfill orders bound for the United States. This shift, driven by strategic circumvention of high tariffs and supply chain recalibration, is presenting India with a rare dual benefit—rising export volumes and deeper integration into global value chains.

The Geopolitical Trigger: Trump’s Tariffs Still Bite

The roots of this trade detour lie in the tariff war unleashed by the Trump administration in 2018. Over $300 billion worth of Chinese goods were slapped with import tariffs, ranging from 7.5% to 25%. 

While initially expected to be temporary, these tariffs remain in place through 2024, with the Biden administration opting for continuity over rollback. According to Statista, US tariffs on Chinese imports remained steady at 19.3% on average in 2023, compared to a global average of 7.3%, a significant distortion that continues to influence sourcing behavior. [Source: Statista – Average US tariff rate on Chinese goods (2018–2023)]

Why Indian Exporters Are in Demand

India’s established export infrastructure, combined with its membership in key trade pacts, makes it a convenient intermediary for Chinese manufacturers looking to retain US clients without directly shipping from China. 

According to the Federation of Indian Export Organisations (FIEO), there has been a notable uptick in inquiries from Chinese firms in sectors like:

Top Indian Export Sectors Benefiting from China Rerouting (FY24) 

Sector	Export Growth YoY	Key Products Involved
Ceramics	12%	Tiles, Sanitaryware
Auto Components	15%	Bearings, Sensors, Pumps
Textiles & Apparel	10%	Cotton garments, synthetic wear
Plastics & Packaging	9%	Film rolls, containers
Engineering Goods	13%	Fasteners, valves, pumps

Source: FIEO, Financial Express

These goods, once made entirely in China, are now either assembled, repackaged, or value-added in India to gain a ‘Made in India’ tag that allows smoother passage into the US market.

Key Data Point:

• India’s goods exports to the US rose to $78.5 billion in FY24, up from $76.2 billion the previous year. [Source: Ministry of Commerce, India]
  
• In parallel, China’s direct exports to the US fell by 13.1% in 2023, marking a multi-year low. [Source: China Customs]
  

Twin Benefits for India

This shift brings two major economic benefits for India:

1. Rising Export Revenues
   By acting as a trade bridge, Indian exporters can earn margins on warehousing, relabeling, partial manufacturing, or last-mile value addition.
   
2. Integration Into Global Supply Chains
   India’s role as a trusted trade partner deepens, especially amid US efforts to “friendshore” supply chains away from China.
   

“This trend could help Indian exporters build long-term contracts and relationships with global brands that are diversifying out of China,” said FIEO Director General Ajay Sahai to Economic Times.

Regulatory Gray Zones & Strategic Risks

While this dynamic may seem mutually beneficial, it is not without legal and strategic risks. For one, rules of origin as stipulated in trade agreements with the US are being scrutinized. If Indian exporters merely act as repackagers of Chinese goods without substantial transformation, they risk losing tariff exemptions or even facing anti-circumvention investigations.

Indeed, Chinese companies have been advised against setting up “ghost units” in India solely to export to the US. Indian authorities are also wary of becoming a backdoor channel for Chinese goods, especially amid rising geopolitical tensions between the two nations.

According to a report by AlCircle, some Indian industry bodies are urging caution, fearing scrutiny from US Customs and Border Protection as well as trade partners like the EU, which might question India’s role in facilitating such exports.

Case-in-Point: Ceramics & Auto Components

A Gujarat-based ceramics exporter told Financial Express that a Chinese supplier offered to supply raw ceramic tiles to India for minor finishing work, which would then be re-exported to the US. This finishing work, although limited, qualifies under Indian customs laws as a ‘substantial transformation’—a key requirement for claiming Indian origin.

Similarly, in the automotive components sector, some Chinese Tier-2 suppliers are utilizing India’s manufacturing capacity to send partially built units for final assembly before shipping them to Detroit or Texas. These practices skirt tariff boundaries but also boost India’s factory utilization and employment.

Implications for India’s Export Policy

This new role puts India at a crossroads: Does it embrace the export volume boost or tighten origin-based compliance to avoid future sanctions?

Experts suggest that India could use this window to build capacity and attract genuine foreign direct investment (FDI) in high-margin sectors, such as electronics, pharmaceuticals, and electric vehicles (EVs), rather than acting as a mere conduit for Chinese goods.

“India must ensure these partnerships are structured around true value-addition,” said trade economist Biswajit Dhar, noting the risk of reputational damage if India is perceived as enabling trade circumvention.

Looking Ahead: A Strategic Lever

At its core, the shift by Chinese exporters to use Indian firms underscores how global supply chains are no longer just about cost but also about compliance and perception. With reshoring and friendshoring reshaping trade maps, India stands to benefit—but only if it treads carefully.

As US-China tensions continue and global companies diversify their sourcing beyond China, India’s rise as a strategic intermediary could evolve into a more permanent role, if it manages the optics and rules with equal dexterity.

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