US-China truce unlikely to trip phone companies' Make-in-India play

Time of India

13-05-2025

New Delhi: The US decision to pause steep reciprocal tariffs on China for 90 days is not expected to slow down the pace of growth in domestic production of mobile phones and related components in India, as the country still has a 20% tariff arbitrage that can be turned into an opportunity, industry executives and experts said.Moreover, the geopolitical situation still favours India as an alternative to global supply chains, which are being diversified to reduce dependence on China, they said. They, however, warned that given the pace of changes in global developments, particularly from the US administration, nothing can be taken for granted.
Despite the agreement reached between the US and China in Geneva, India continues to have a 20% tariff arbitrage over China for exports to the US. But this arbitrage certainty is only till July 9 - Washington has agreed to suspend reciprocal tariffs on India until then. If India and the US fail to reach an agreement, India may again face 26% tariffs, which will put the country in a disadvantage. But this looks less likely as both countries are working on a bilateral trade agreement, and the industry is hopeful of a positive outcome.
"Since smartphones, laptops and tablets were excluded from the reciprocal tariffs, there won't be any significant change for India's manufacturing ecosystem as of now," Pankaj Mohindroo, chairman of the India Cellular and Electronics Association, told ET.
US-bound exports of products like smartphones, laptops and tablets from India attract zero duty and still have an edge over exports from China which must pay 20% duty, he said. In the latest deal between the US and China, the reciprocal tariffs have been reduced from 125% to 10%. The 25% tariff that the then Trump administration imposed in 2018 on several imports and the 20% duty on the opioid drug fentanyl stay.
When it comes to the Indian manufacturing space, the government's incentive schemes combined with the current scale of production has been able to offset the 7-10% cost disability compared with China in manufacturing.
Industry executives remain upbeat about global interest in investing in the manufacturing ecosystem in India.
"India still has some residual disability when compared to Vietnam and we are working with the government to remove the bottlenecks. We remain cautiously optimistic," Mohindroo said.
"Global companies will not stop looking beyond China since the situation is still very fluid...most players in the electronics industry operate with an around 5% net margin, except for Apple, and a 30% duty differential is still massive for them. So, the world will continue looking at other countries," an executive from an electronics contract manufacturing firm told ET.
Other executives said the industry is seeing US-China development as an icebreaker, signalling an intent from both sides to find a common ground and move towards a more balanced trade relationship.
"This reprieve creates a slight uncertainty for India regarding previously held plans and expectations. Before this deal, heavy import duties on Chinese goods made India appear as the next best alternative," an industry executive said.