GTRI advises Indian businesses to refrain from rerouting commodities from China

Domestic exporters should not use India as a destination for re-routing goods originating from high-tariff countries like China to the US, economic think tank GTRI said. Instead of re-routing, Indian exporters should build genuine value addition, supply chain transparency, and adhere to US customs rules, the Global Trade Research Initiative (GTRI) said.

Indian firms need to build on genuine value addition, supply chain transparency, and comply with US customs rules. For countries like India, the opportunity is real, but only if exporters play by the rules.

Exporters often misunderstood US non-preferential rules of origin (RoO), which determine a product’s true origin. If a product contains high Chinese content and fails to meet the substantial transformation test, it may still be classified as Chinese, regardless of where it was assembled and subjected to punitive tariffs.

The US has imposed tariffs as high as 245 per cent on China, while most other countries continue to enjoy just 10 per cent duties. This disruption is prompting companies to rethink sourcing strategies, giving rise to three distinct trade models, each with different implications for exporters.

It also said that as Chinese exports to the US decline, manufacturers in China may try to offload their surplus in other markets at deeply discounted prices. This could distort prices and hurt domestic industries in countries like India.

Already, the Directorate General of Trade Remedies (DGTR) is keeping a close watch on import trends, especially in sensitive sectors such as steel, toys, chemicals, and synthetic textiles, it added. To ensure compliance with US RoO, firms must map and audit the supply chain to identify foreign content; redesign manufacturing processes to ensure domestic transformation of key inputs; and maintain meticulous documentation, including invoices, production steps, and origin declarations. Further, it said India, with its robust and cost-effective API (active pharmaceutical ingredient) manufacturing ecosystem, is well-positioned to absorb a large portion of redirected demand in the chemicals sector. In 2024, the US imported USD 165.5 billion worth of chemicals, including APIs and other pharmaceutical raw materials, with China supplying 9.7 per cent.

To navigate the tariff shock, several countries are poised to step in. Similar opportunities are there for Indian firms in sectors such as machinery, electrical and electronic products, textiles, garments, leather and footwear, ceramic and cement products, and plastics, furniture, toys and medical devices.