As supply chains realign, India must not take shortcuts: GTRI

A new study by the Global Trade Research Initiative (GTRI) highlights a growing global trend called “tariff shopping,” likened to the earlier practice of “treaty shopping” used to minimize income tax liabilities. The report observes that escalating import duties between the US and China reaching as high as 145% on some Chinese goods are prompting global buyers to seek alternative production and sourcing bases.

Amid uncertainty over how long these US tariffs will remain, businesses are moving quickly to adapt. Many are setting up assembly lines, contract manufacturing units, or joint ventures that meet the threshold of “substantial transformation” without needing to build full-scale industrial ecosystems.

India and other countries are witnessing increased interest from global buyers exploring outsourcing opportunities to take advantage of lower tariffs—around 10% for non-Chinese exporters to the US market. However, the report cautions that merely rerouting Chinese products through third countries like India could trigger investigations and penalties from US Customs and Border Protection (CBP).

To avoid being classified as Chinese-origin goods, products must undergo genuine value addition and meet US non-preferential rules of origin. This includes thorough supply chain mapping, redesigning manufacturing processes, and meticulous documentation. If a product fails the “substantial transformation” test—due to high Chinese content or lack of meaningful manufacturing changes—it may still face punitive tariffs.

The GTRI report notes that this approach is gaining traction across industries like electronics, garments, furniture, toys, kitchenware, auto parts, and steel. However, compliance standards vary: for example, in textiles, the origin is determined by the fabric’s source, not the stitching location; in electronics, programming and assembly of key components like logic boards define the origin, not just final assembly.

Experts are calling for tailored policy measures to support manufacturing revivals in emerging production hubs. Adhering to origin rules is critical to maintaining access to global markets and avoiding long-term reputational and financial risks.