By Subrata Majumder
Battered by President Donald Trump’s high tariff, China resorted to Look East policy with a new investment linked trade strategy to increase resilience to USA’s tariff woos. China’s direct export to USA plummeted due to US high tariff. It declined by 29.7 percent in 2025 – from US$ 525.7 billion in 2024 to US$ 308.4 billion in 2025. Nevertheless, China’s indirect export to USA, viz, re-routing export through third countries – increased.
To this end ASEAN (comprising of 10 nations) emerged a major breakthrough in Chinese re-routing export to USA. ASEAN acted Chinese investment hub and pave the way for re-routing its manufacturing goods exports to USA.
A close link between Chinese investment in ASEAN and ASEAN exports to USA was fostered. This catapulted ASEAN’s exports to USA, primarily driven by Chinese manufacturing goods in the region.
USA’s reciprocal tariff on ASEAN is lower than China. While direct export of Chinese goods to USA attract an average US tariff of 47.5 percent, tariff on exports by individual ASEAN nation to USA varies between 10 percent to 49 percent. Even though the range of tariff on ASEAN -10 merchandises is wider and higher in case of some ASEAN member countries, given the Chinese investment concentration in ASEAN countries, the effective rates are lower than Chinese direct export to USA.
Chinese investment in ASEAN is concentrated in 4 member countries . They are Malaysia, Indonesia, Thailand and Vietnam. Excepting Vietnam, the US reciprocal tariff in other three members countries varies between 24 percent to 36 percent. They are much lower than the tariff on Chinese exports. These lend a special advantage to Chinese investors in ASEAN to manufacture and re-route exports to USA.
Besides lower US reciprocal tariff on ASEAN exports, RCEP (Regional Comprehensive Economic Partnership) – a free trade block comprising of ASEAN-10 and China , Australia, Japan, South Korea and New Zealand – lent a major leg up to Chinese investors to manufacture merchandise at lower cost in ASEAN.
RCEP allows regional supply of raw materials and intermediates duty free facility. It means that inputs sourced from China are duty free when they are assembled in ASEAN, provided they meet the threshold limit of 40 percent China origin under the Rule of origin.
China emerged 2nd biggest foreign investor in ASEAN, next to USA. Nonetheless there is a caveat. While USA investment in ASEAN pitched for downtrend, Chinese investment surged in the region. USA investment in ASEAN dropped by 59.2 percent in 2024 and further declined in 2025 and, Chinese investment in ASEAN surged by 57.8 percent in 2024 and increased further in 2025.
These led to a turnaround in the trilateral investment linked trade strategy between ASEAN, USA and China. ASEAN export to USA demonstrated a boom in 2024 and 2025, despite higher USA reciprocal tariff and lower USA investment in the region. This unfolds that spurt in export to USA by ASEAN was driven by increased Chinese investment in the region.
The paradox in FDI by USA and China in ASEAN and its export to USA suggest that Chinese investment made a tactical excellence to outsmart USA’s high tariff barrier and leverage Chinese re-routing export to USA.
A lesson can be drawn from the Chinese tactical investment linked trade strategy to re-route export to USA. In India, the impact of USA high tariff is inevitable. USA has been the biggest export destination for India. Given the Trump’s high reciprocal and other tariff, India’s exports to USA plunged in 2025-26. It’s export growth fell drastically to 0.62 percent in 2025-26 from 11.8 percent in 2024-25.
USA accounts for nearly one-fifth of India’s global exports. Eventually, it imparts major impact on India’s global export. Besides trade, export to USA play significant role in generating employment opportunities at SME level manufacturing in India.
Besides electronics, the major items of India’s exports to USA are garments, textiles and gems and jewellery, which are labour intensive. These three major group of labour intensive products account for nearly one-fourth of India’s export to USA. Owing to high reciprocal tariff, shares of these three merchandise groups nosedived in 2025-26. It declined from 23.5 percent in 2024-25 to 16.3 percent in 2025-26.
Given this deplorable paradigm in export basket to USA, should India give second thought in opening Chinese investment in India?
India suspended Chinese investment through Automatic Approval (AA) route in April 2020, owing to security concern. After six years it re-opened in March 2026, but with a caveat. New policy allows companies with less than 10 percent Chinese investment to enter through AA route.
But, how will the minority stake attract Chinese big houses to invest in India and boost India’s exports?
Currently, large Chinese imports emerge pivot to the growth of Indian manufacturing of new industries and boost export of non-traditional products. Rapid growth of electronics, auto parts and pharmaceuticals industries are the cases in point Eventually, they outpaced traditional industries in the export basket. In other words, Chinese imports became indispensable to the growth of new industries in India and export.
Production of electronic goods in India surged six fold – from US$21.3 billion in 2014-15 to US$127 billion in 2024-25. India is the second largest manufacturer of mobile phones in the world.
China emerged the biggest supplier of component and parts for the growth of electronic industry in India. It accounted for nearly 32.7 percent of India’s total imports of electronic supply chain in 2025-26, comprising of mainly critical component and parts, such as PCBs, display panels and semiconductor devices.
Similarly, China is the biggest supplier of supply chain for automobile and pharmaceutical industry in India. It accounted for 29.8 percent and 38.1 percent of total imports of automobile and pharmaceuticals respectively in 2025-26.
To this end, a second thought for opening the door widely for Chinese investment is imperative to arrest the impact of Trump’s high tariff. (IPA Service)
