Chinese companies facing high tariffs in the US are turning to Indian exporters for help in fulfilling orders for American customers.

This development arises as Chinese exporters confront levies of up to 145% on goods shipped to the US, according to Ajay Sahai, director general of the Federation of Indian Export Organizations.

At the Canton Fair in Guangzhou, Indian firms reported being contacted by Chinese companies to supply products to the US under co-branding arrangements or the branding of the Chinese firms.

In return, Indian exporters would pay commissions to the Chinese companies, Sahai said.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Strategic adaptation in US-China trade tensions follows historical patterns

The current approach by Chinese firms to use Indian exporters as intermediaries represents a sophisticated evolution of trade diversion strategies that have roots in US-China commercial relations.

When faced with trade barriers historically, businesses have consistently found creative pathways to maintain market access, from the 18th century when American traders used neutral flags during conflicts to today’s complex supply chain reconfigurations 1.

After Trump’s first-term tariffs, Chinese manufacturers primarily relocated to Vietnam and Thailand, but those countries now face 46% tariffs themselves, making India’s current 10% rate (rising to 26% in July) comparatively attractive 2.

This approach differs from previous strategies, however, as Chinese firms aren’t setting up manufacturing in India due to investment restrictions, instead creating commission-based arrangements where Indian companies produce under Chinese brands 2.

The resilience of trade relationships during periods of political tension demonstrates how economic interdependence creates powerful incentives to find workarounds to policy barriers, a pattern visible throughout the historical US-China relationship 3.

2️⃣ India’s unique position creates opportunities and limitations in global supply shifts

Unlike Southeast Asian nations that became manufacturing extensions for Chinese firms during previous tariff rounds, India maintains significant restrictions on Chinese investment, creating a distinct dynamic in this trade diversion scenario 2.

This explains why the collaboration is happening through commission-based arrangements rather than direct Chinese investment or transshipment. Sectors like hand tools, electronics, and home appliances are particularly active in these negotiations 2.

The approach leverages India’s growing manufacturing capabilities while maintaining Chinese firms’ brand relationships with US customers, potentially offering Indian companies access to established distribution channels and customer bases 2.