When does a Chinese product become ‘Made in India’? Trump's transshipment crackdown raises a tricky question

The US administration’s latest crackdown on what it calls the “Great Transshipment Scam” has put India among more than 40 countries that Washington says are at risk of being used to circumvent tariffs on Chinese goods. But for India, the issue is more complicated than simply determining whether Chinese goods are being rerouted through another country.

At the centre of the dispute is a question with potentially significant implications for India’s manufacturing and export ambitions: how much processing or value addition is enough for a product to be considered an Indian-origin good rather than a Chinese one?

That distinction matters because modern manufacturing rarely happens within one country. Indian manufacturers increasingly import components, raw materials and intermediate goods from China, undertake processing or assembly in India and export finished products to markets such as the US.

The White House report estimates that transshipment could be costing the US between $19 billion and $26 billion a year in lost tariff revenue. It identifies more than 40 countries as part of what it describes as a global transshipment-risk network, with India among the economies placed in the highest-risk tier.

For India, therefore, the debate is not simply about Chinese imports. It is about where the line should be drawn between legitimate participation in global supply chains and deliberate tariff evasion.

What exactly is transshipment?

In its simplest form, transshipment involves moving goods through a third country before they reach their final destination.

Consider a hypothetical example. A product manufactured in China could be shipped to India, undergo little more than repackaging or relabelling, and then be exported to the US with India declared as the country of origin. If that is done specifically to avoid a higher US tariff on Chinese goods, Washington could treat it as tariff circumvention.

The White House report describes several forms of such activity, including minor processing, relabelling, repackaging and re-invoicing. It argues that Chinese exporters have adapted to US tariffs by routing goods through lower-tariff jurisdictions.

But that example becomes considerably more complicated when the product entering India is not a finished Chinese product.

If an Indian manufacturer imports Chinese components, uses them in a manufacturing process in India and exports a substantially transformed finished product, the question becomes whether that transformation is sufficient under US rules to establish Indian origin.

That is the central issue facing Indian exporters.

The crucial question: how much value addition is enough?

Former Commerce Secretary Ajay Dua argues that the US crackdown raises a fundamental question over the threshold for legitimate manufacturing.

“If the addition is 10%, 20%, is it allowed or not?” he asked, pointing to the difference between simple packaging or rebranding and meaningful manufacturing.

Rules of origin are intended to answer precisely this kind of question. When a product is made using inputs from several countries, customs authorities need a framework to determine its economic origin.

Depending on the trade agreement or tariff regime, that can involve tests such as a change in tariff classification, a specified manufacturing process or a minimum level of value addition.

There is therefore no basis for assuming that the use of Chinese inputs automatically makes an Indian export a Chinese product. At the same time, simply performing a minor operation in India does not necessarily turn a Chinese-made product into an Indian-origin product.

The dividing line is the extent and nature of the transformation.

This distinction is particularly important because the White House report itself acknowledges that legitimate trade and transshipment risks can coexist within large, diversified economies such as India.

Why electronics is particularly exposed

Electronics illustrates the complexity particularly well.

India has been expanding its electronics manufacturing base and increasing exports, but the industry remains deeply integrated with Asian supply chains. Components and sub-assemblies can originate in different countries before a finished product is assembled and exported from India.

Biswajit Nag, professor at the Indian Institute of Foreign Trade, said India's manufacturing strategy has to be viewed against this reality.

“India's manufacturing effort, in which China is playing an important role because we are importing components and producing final goods, and electronics is one of the sectors,” he said.

The key question is therefore not whether Chinese components are present. They often are. The question is what happens to those components after they enter India.

If an Indian factory merely repackages a finished Chinese product, the US could have a stronger basis to question the declared origin. If the imported components are incorporated into a substantially different product through significant manufacturing in India, the exporter can argue that the final good has acquired Indian origin.

For companies, the distinction matters commercially as much as legally. Greater uncertainty over origin could mean more customs scrutiny, documentation requirements and potential tariff liabilities.

Why Chinese manufacturing is spreading across countries

There is also a broader structural reason why Chinese inputs and manufacturing operations are increasingly distributed across several economies.

Dua pointed to China's demographic transition and the decline of the labour surplus that once underpinned its manufacturing dominance. As labour costs and demographic pressures rise, some labour-intensive stages of production can increasingly move to other countries.

India, Vietnam and Mexico have consequently become important locations within global manufacturing networks.

This does not necessarily mean that manufacturing is moving entirely away from China. Instead, production is becoming more fragmented. A product may involve Chinese raw materials, components manufactured in another Asian economy, assembly in India and final consumption in the US.

That fragmentation creates both an opportunity and a vulnerability for India.

The opportunity is that Indian manufacturers can capture a larger share of global value chains by taking on more sophisticated production stages.

The vulnerability is that a higher dependence on Chinese intermediate goods can attract greater scrutiny from Washington, particularly if US authorities believe some exporters are using India primarily as a route around Chinese tariffs.

What does the report mean for India's exports?

The immediate impact may be increased scrutiny rather than an automatic restriction on Indian exports.

The White House has indicated that it wants stronger tools to identify and penalise transshipment, including the use of artificial intelligence. Its proposed “Detective Border” system is intended to analyse trade and shipment information to identify potential anomalies and high-risk consignments.

For Indian exporters, that could raise the importance of maintaining detailed documentation on the origin of components, manufacturing processes, value addition and supply-chain relationships.

The stakes are particularly high because the US is an important destination for Indian manufactured goods. If US customs authorities begin applying more aggressive scrutiny to products from countries identified as transshipment risks, legitimate exporters could face higher compliance costs even when they are not engaged in tariff evasion.

This is why the distinction between Chinese inputs and Chinese-origin finished goods will become increasingly important.

What does India need to clarify with Washington?

India's immediate challenge is to establish what level of processing Washington considers sufficient to confer Indian origin.

Nag said India needs to engage with the US on precisely this question and determine the level of value addition required for products to qualify as Indian-origin goods.

The Global Trade Research Initiative has also questioned whether aggregate trade data can by itself establish that rising US imports from third countries represent rerouted Chinese goods. It has argued that the US should provide shipment-level evidence and identify specific products or exporters where tariff circumvention is suspected.

That distinction is important because trade flows can change for legitimate reasons. A rise in US imports from India or Vietnam alongside a decline in direct imports from China may indicate a shift in manufacturing geography, but it does not by itself prove that Chinese goods were simply rerouted.

For India, the objective will be to ensure that stronger US enforcement does not blur the distinction between genuine manufacturing and deliberate tariff evasion.

The bigger issue for India's manufacturing push

The transshipment controversy comes at a sensitive point for India-US trade relations, with the two countries already dealing with disagreements over tariffs, market access and broader trade arrangements.

But the issue also reflects a much larger transformation in global manufacturing.

India wants to attract production, deepen domestic value addition and become a bigger part of global supply chains. China remains an important source of components and intermediate goods for many of those supply chains. At the same time, the US is becoming more aggressive in scrutinising the origin of goods entering its market.

That creates a difficult balancing act.

India cannot build globally competitive manufacturing overnight by eliminating Chinese inputs from every supply chain. Nor can it afford to allow genuine manufacturing to be confused with simple tariff circumvention.

The “Great Transshipment Scam” report has therefore created a new trade friction point, but its larger significance lies in the question it raises about the future of global manufacturing: when production spans several countries, who gets to decide when a product becomes “Made in India” — and what level of value addition is enough for the US to recognise it as such?

How India and Washington resolve that question could influence not only the treatment of Indian exports, but also the next phase of India's effort to move higher up global manufacturing value chains.