Why US crackdown on transshipment could have consequences for India

Indian Express

17-07-2025

A key element in the flurry of reciprocal tariff letters the United States has sent to countries deeply integrated with its economy, be it Canada and South Korea — or those with close economic ties to China, such as Thailand and Malaysia in the Association of Southeast Asian Nations (ASEAN) region — is the threat of steeper tariffs on transhipped goods. Washington DC views this as a backdoor route for Chinese products to enter its market.
Transhipment in trade parlance refers to the practice of importing products from one country and exporting them to another, usually without significant processing or value addition. Indian experts suggest that, in India's case, the US could invoke stringent 'rules of origin' provisions under the trade agreement to discourage the entry of Chinese goods into the US via India. But India's reliance on Chinese products across industry could pose a significant problem while dealing with the US.
The Trump administration's crackdown on rerouted goods, which previously allowed countries like Vietnam to serve as conduits for Chinese exports into the US, could extend to India as US Vice President JD Vance during his visit to India in April, issued a veiled warning to New Delhi, stating that the US seeks partners committed to working with America to build things —'not those who merely allow themselves to become conduits for transhipping goods from elsewhere'. This assumes significance for India as its dependence on China has increased sharply, particularly since the Covid-19 pandemic. To be sure, Chinese exports have surged globally — including to the US — following the pandemic, as production in China remained relatively stable while the rest of the world faced disruption.
Official trade data indicates a simultaneous rise in imports from China and exports to America. Data from the Commerce and Industry Ministry showed that India's exports to the US in April rose 27.31 per cent to $8.41 billion, up from $6.61 billion in April last year. At the same time, imports from China increased by a comparable margin — up 27.03 per cent to $9.90 billion, compared to $7.79 billion a year earlier.
A similar pattern emerged in March, as concerns grew over the possibility of steeper Trump-era tariffs on Chinese goods relative to Indian ones. India's exports to the US jumped 35 per cent to $10.14 billion, while imports from China rose 25.02 per cent to $9.67 billion. During FY25 as a whole, India's exports to the US rose 11.59 per cent to $86.51 billion, while imports from China increased 11.52 per cent to over $113 billion.
However, in June the imports from China surged 2.48 per cent but exports to the US jumped 23.53 per cent. This comes amid an increased number of anti-dumping duties that India has begun imposing on high value items such as steel and other industrial goods from China.
Decoupling from China has been a slow and painful process even for the US. For India — which aims to expand its manufacturing base to create jobs for its large population — the challenge is even greater. Despite opting out of the China-led Regional Comprehensive Economic Partnership, India's imports from China have continued to surge, surpassing $113 billion in FY25.
While poor logistics and a lack of industrial expertise are often cited as reasons why India's manufacturing sector has struggled, the imbalance in the Chinese economy also played a role. The lower cost of Chinese goods has disrupted several Indian industries. In the renewable energy sector, where domestic solar cell manufacturers have struggled to compete with Chinese imports.
Chen Gang, Assistant Director and Senior Research Fellow at the National University of Singapore, notes in his report China's Consumption Dilemma in the Age of Trump that 'China's economy has been notoriously imbalanced, characterised by low domestic consumption and an overreliance on export and investment.'
China's 'state capitalism has an innate tendency to focus on the 'supply side' instead of the 'demand side',' Gang wrote in his report for the Hinrich Foundation. He adds that this approach has led to 'enormous industrial capacity subsidised by the state but detached from real market demand.' Policies such as 'dual circulation', aimed at promoting self-sufficiency, have inadvertently 'exacerbated industrial overcapacity rather than alleviated it'. That surplus capacity, in turn, has driven Chinese producers to aggressively seek external markets—potentially distorting global trade and fuelling competitive pressures abroad.
'Since the end of its draconian pandemic restrictions, China's economy has struggled to rebound amid weak demand, excess savings, debt crises, and falling property prices and investment,' the report said. 'Economists are urging Beijing to shift focus to boosting consumer demand and away from a debt-fuelled, investment-led model that funnels resources into export-oriented manufacturing at the expense of households.'
Ravi Dutta Mishra is a Principal Correspondent with The Indian Express, covering policy issues related to trade, commerce, and banking. He has over five years of experience and has previously worked with Mint, CNBC-TV18, and other news outlets. ... Read More