India can benefit from high US tariffs on China. Exporters must play by rules: GTRI

Significantly high US tariffs on China are reordering global trade, with countries like India emerging as potential beneficiaries, provided exporters play by the rules, said a new report by the Global Trade Research Initiative (GTRI).

However, the report Tariffs, Traps & Trade Paths warned that while opportunities are abundant, non-compliance with US origin rules could quickly turn gains into penalties. It flagged risks of dumping, re-routing, and origin misclassification that could derail the potential shift.

“Chinese exports to the US are being penalised heavily. But this doesn’t mean countries like India can step in and fill the void without ensuring they meet the US origin tests,” said Ajay Srivastava, co-founder of the GTRI, on Thursday, adding that exporters must now focus on genuine transformation of products to pass customs scrutiny.

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While some Chinese goods face US duties as high as 245%, most other nations have to pay 10% tariffs until at least 8 July. This has set off a realignment of supply chains, and three trade models are emerging in response. The report terms the first—re-routing of finished Chinese goods through countries like India—as both illegal and risky. “Such tactics violate US non-preferential rules of origin and will invite penalties,” it said.

The second risk is Chinese firms dumping excess goods in markets like India at low prices. The Directorate General of Trade Remedies (DGTR) is already monitoring import patterns in sectors like steel, chemicals, and toys, and could invoke anti-dumping duties.

The third and most viable model, according to the GTRI, involves setting up new manufacturing bases in countries like India, Vietnam, or Mexico, where Chinese inputs are processed into new products that meet the “substantial transformation” rule. “This approach is legally compliant and offers long-term export growth,” Srivastava said.

The report stressed that passing the US origin test is not simple. Goods made using significant Chinese inputs could still be deemed Chinese if they don’t undergo meaningful transformation. For instance, stitching garments using imported fabric, assembling solar panels with foreign cells, or packaging pharmaceutical tablets from imported APIs (active pharmaceutical ingredients) will not suffice under US rules.

The GTRI noted that the US Customs and Border Protection bases origin on two key tests: whether the product is wholly obtained or whether it has undergone substantial transformation, which involves a change in name, character, or use. The final interpretation rests with US customs officials, and firms are advised to seek advance rulings where clarity is needed.

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From India’s standpoint, the sectors best-placed to benefit include pharmaceuticals and API manufacturing, electrical goods, textiles, leather, toys, and even chemicals.

In 2024, the US imported nearly $166 billion worth of chemicals, with China supplying about 10%. India, already a large manufacturer of bulk drugs and intermediates, could see orders diverted its way, if it can ensure domestic value addition and meet compliance norms.

Pharmaceuticals have also emerged as a standout performer. Exports of drugs and pharmaceutical products surged from $7.55 billion in 2022-23 to $8.73 billion in 2023-24 and reached $10.52 billion in 2024-25. This consistent double-digit growth underscores India’s positioning as a dependable supplier of generics and critical medicines amid a shifting global healthcare landscape.

India's electronic goods exports have shown a sharp upward trajectory, rising from $5.76 billion in 2022-23 to $10.05 billion in 2023-24, and further to $14.64 billion in 2024-25.

This threefold increase in just two years signals not only rising global demand but also India’s improving readiness to participate in high-volume, mid-tech manufacturing—a segment where the US is actively looking for alternatives to China.

Textiles and garments may benefit too, but only if the fabric is sourced domestically. “Just cutting and stitching imported fabric will not pass muster,” the report cautioned, suggesting that preferential US tariffs would likely apply only to goods with substantial local value addition.

India’s textile exports to the US rose to $10.91 billion in 2024-25 from $10.02 billion in 2023-24 and $10.44 billion in FY23, reflecting the sector’s resilience. However, a greater integration of domestic raw material supply is needed to fully capitalise on emerging trade shifts.

Engineering goods, including machinery, industrial components, and auto parts, also continue to show promise as a diversified export category. Shipments rose to $19.16 billion in 2024-25, up from $17.63 billion in 2023-24 and $18.68 billion in 2022-23. The increase suggests that Indian manufacturers are gradually consolidating their foothold in the US market, even as they compete with East Asian suppliers.

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The GTRI cautioned that while the trade shift is real, the US will closely monitor for abuse. “Exporters must invest in mapping supply chains, reconfiguring processes to build domestic value, and documenting every step. Taking shortcuts will not work in this environment,” it stated.