The recent imposition of “reciprocal tariffs” by the United States (“US”) and the potential reaction/retaliation from trade partners is indicative of global trade dynamics entering an era of aggressive tariff enforcement and geopolitical recalibration.
As described in our previous blog “FCPA, FCA, and the Trump Effect: What Indian companies need to know”,[1] the False Claims Act, 1863 (“FCA”), imposes liability on individuals and companies that intentionally submit false claims for government funds linked to bribery, kickbacks, or misrepresenting compliance, etc., and has jurisdiction over foreign entities. Any Indian company manufacturing for or exporting to the United States may face FCA liabilities if it falsifies or misrepresents compliance documents to secure US government-related contracts, including on aspects related to quality, customs classification, and export documentation/certification.
Pairing the FCA with newly imposed the US tariffs creates a complex legal landscape for foreign exporters. This blog post unpacks the interplay between the FCA and the evolving US–India tariff regime, outlines key legal and compliance risks facing Indian exporters, and offers strategic recommendations to mitigate enforcement exposure—particularly considering the increasing use of Chinese components in Indian-manufactured goods.
The reciprocal tariff regime vis-à-vis India
On April 2, 2025, US President Donald Trump issued Executive Order 14257 (“E.O. 14257”), Section 3(a) of which imposes a 10 per cent ad valorem duty on all US goods imports.[2] Additionally, it imposes higher country-specific reciprocal tariffs on all goods imported from more than 50 countries listed in Annex I to the E.O. For the Annex I countries, these tariffs will become operational from July 9, 2025. Key tariff-related developments under the E.O. 14257 include the following:
- All articles imported into the United States from India—an Annex I country—will face a tariff of 26 per cent.
- All articles in Annex II of the E.O. 14257 will not be subject to ad valorem rates of duty. This includes, among other things, certain critical minerals, energy and energy products, semiconductors, etc.
- The rates in the E.O. 14257 are in addition to other duties, fees, taxes, exactions, or charges applicable to the imported articles.
The order, under Sections 3(b) and (c), grants the President powers to increase and expand or decrease and limit the tariffs based on retaliatory or remedial responses of its trading partners, respectively. Therefore, substantial ambiguity persists regarding the permanency of these tariffs, which makes business decisions such as shifting manufacturing bases difficult.
United States and China
The E.O. 14257 imposed a tariff of 34 per cent on China, an Annex I country. Subsequently, owing to China’s retaliatory measures, Trump increased the tariffs to 84 per cent. In response to this move, China unveiled tariffs of 84 per cent on the United States to match the imposed tariffs. Recent developments have included a steep rise in tariffs on China of up to 245 per cent.
Earlier this year, China had restricted export to the United States of vital high-technology materials such as allium, germanium, etc., which are critical for military, aerospace and semiconductor industry earlier this year. It has expanded these restrictions to six heavy rare metals which are also crucial for these industries.
This recent tussle, indicative of the US administration’s anti-China turn, can have serious implications for businesses globally.
Risk-factors for Indian businesses
Countries across the world engaged in cross-border exports—particularly to the United States—are finding themselves at the intersection of legal exposure and commercial vulnerability. Indian companies must ensure that they remain compliant with applicable laws to avoid getting caught in the quagmire of legal uncertainties.
Firstly, the issue of E.O. 14257 and the imposition of tariffs could imply closer scrutiny. This would, in turn, mean that customs declarations must be airtight and even a minor error in the classification of products or misrepresentations of supply chain or value can raise red flags.
The FCA would be triggered in such examination, whether through qui tam provisions following whistleblower complaints or through “reverse false claims”. The concept of “reverse false claims” refers to knowingly making a false record or material statement regarding an obligation to pay money to the government. This could be invoked, for instance, in case of misdeclarations about the country of origin or the value of goods to evade tariffs.
Using third-party certifications or intermediaries not adequately vetted may also lead to liability, especially if such claims were made out of deliberate ignorance or reckless disregard.
Secondly China’s position in this tariff regime presents specific risks, which can emerge from misdeclaring Chinese goods as Indian. While it is unlikely that Chinese goods will simply be rebranded as Indian and exported to the United States, the following illustration indicates the potential challenges that may arise from such a situation:
Say an Indian company, ABC, an electronics manufacturer and supplier is engaged in the supply to a US company, XYZ, and ABC sources some components, for example microchips, from China and assembles these in a larger module in India and exports it to XYZ.
Several issues can emerge from such a situation. If the US authorities discover that the microchips are of Chinese origin and the work done in India does not pass the “substantial transformation” test,[3] this misrepresentation of origin, which would have influenced the pricing (due to higher tariff impact on China than India), could lead to exposure under the FCA. A situation such as this could trigger commercial liability due to breach of contract, fines under the FCA, blacklisting by the US government, as well as reputational harm.
What can Indian companies do?
Indian companies engaged in cross-border trade must be mindful in the conduct of their business to minimize exposure.
- Vigilance and diligence in business: Businesses must be aware of the HTS (harmonised tariff schedule) classification and tariffs applicable to their products. The businesses may obtain this clarity through a “binding ruling” from the US Customs and Border Protection (“CBP”), which provides official guidance on various aspects such as the HTS, marking of country of origin, applicability of quotas, trade agreements, and duties. The businesses must also be mindful of the chain of supply of goods and parties involved in the export or re-export of goods.
- Conduct thorough origin analysis: Businesses must evaluate whether the processing in India constituted substantial transformation of Chinese components or components from other countries with different tariff rates. Legal counsel can help analyse the risks associated with the import-export of products, taking into account not only tariff rates but also other red flags, including sanctions, export controls, and other geopolitical factors.
- Ensure accurate documentation: Businesses must keep detailed records of manufacturing processes, components used, records of supply chain, and any other necessary documentation as required under applicable Indian and US laws. This is particularly critical for companies engaged in trade with the United States.
- Strategizing supply chain adjustments: Businesses must re-asses supply chains to find the most commercially viable solutions which are also compliant with the laws.
- Adopt adequate policies: Companies must institute adequate policies related to exports and imports, whistleblower mechanisms to pre-empt qui tam risks, etc. These must align with compliance requirements to mitigate FCA exposure.
- Training: Companies must providetrainingfor employees and key company personnel in compliances and remain updated about current legal developments in the relevant jurisdictions of the companies’ operations.
Indian legal counsels are well-positioned to assist Indian companies engaged in cross-border trade during this period of legal uncertainty. They can help navigate the complex regulations and mitigate risk exposure. For instance, the expertise of Indian legal counsel may prove critical in obtaining a binding ruling from the CBP or in determining whether the goods have undergone “substantial transformation”.
Conclusion
The convergence of US tariff recalibration, anti-China trade policies, and expansive use of the FCA has created a high-stakes compliance environment for Indian companies. In this new era, it is no longer sufficient to rely on commercial documentation alone—compliance must be evidentiary, proactive, and legally robust.
Indian exporters would do well to recognise that the cost of compliance is far lower than the cost of regulatory scrutiny. In an enforcement-first world, legal strategy must now be at the core of supply chain planning and business operations.
[1] FCPA, FCA and the Trump Effect: What Indian companies need to know | Dispute Resolution Blog
[2] Executive Order 14257, 2025-06063.pdf
[3] Substantial transformation is a concept emerging out of case law. It implies that the good underwent a fundamental change in form, appearance, nature, or character. This could occur as a result of processing or manufacturing in the country claiming origin. Additionally, this change adds to the good’s value at an amount or percentage that is significant, compared to the value which the good (or its components or materials) had when exported from the country where it was first made or grown.
