India’s Growing Economic Clout in the Shadow of the US-China Trade War
Sagnik Samadder
Senior Research Associate, BRIEF
Key Takeaways:
Businesses are operating under growing uncertainty due to ongoing trade disputes, marked by reciprocal tariffs, para-tariffs, and a recent pause in negotiations, undermining predictability and long-term planning.
India is increasingly emerging as a pivotal hub in global semiconductor manufacturing, playing a critical role in the production of iPhones. The Indian semiconductor market is poised to expand significantly from USD 34.3 billion in 2023 to an estimated USD 100.2 billion by 2032.
India must scale production to capture the U.S. market, e.g., producing 80 – 85 million iPhones. Focus on the production of high-precision lasers, air leak testing stations, and pick-and-place machines in India is crucial, which are currently imported from China.
A pressing need for a comprehensive U.S.-India bilateral trade agreement to unlock the full potential of electronics, specifically smartphone exports to the USA.
With the recent transition in U.S. leadership aimed at addressing the trade deficit, there is a pronounced strategic shift toward tariffs and broader trade policy, leading to a growing tariff dispute between the US and China, whereby India has huge scope to boost its scope of overall production and improve its exports to the US. After a series of reciprocal tariffs, para-tariffs and other non-tariff barriers being implemented with the recent temporary pause, businesses are facing uncertainties now. India, on the other hand, is uniquely positioned to serve both as a reliable ally and a pivotal economic counterweight for the U.S. India has positioned itself to champion a new global order, which is more pragmatic than rigid and away from conflicts. For the USA, a partner in the global south with such a balance can become an asset, as in India’s partnership with the US is compounding its rise to become its biggest stakeholder. As of 2024, China remains the United States’ third-largest trading partner, while India ranks twelfth, with bilateral trade between India and the U.S. totalling USD 129.2 billion, whereas China has a bilateral trade of USD 582.5 billion in 2024. This highlights the imperative for India to enhance its competitiveness and deepen economic engagement to capture a larger share of the U.S. market.
As of April 11, 2025, the United States has raised the base tariff on all imports from China to 145.0%. Effective May 2, the de minimis exemption for shipments under $800 from China will be suspended, subjecting these imports to full tariff enforcement. On April 13, a temporary exemption was granted for selected electronics, such as smartphones, laptops, integrated circuits, and storage devices, though the 20% fentanyl-related tariff remains in place. China, which supplies 24.7% of all U.S. electronic imports, now faces a 100.0% tariff on semiconductors, potentially driving up costs for electronic component procurement. A recent declaration sheds light on reducing the reciprocal tariffs by both the US and China from 145% to 30% and 125% to 10%, respectively, applicable for the next 90 days, yet the reduction of tariffs on the electronic items is unclear, pushing businesses to rely solely on uncertain conditions for a prolonged period.
Electrical machinery and its parts thereof, along with mechanical appliances, machinery, nuclear reactors, boilers, toys, games and sports requirements are mainly among the heavily tariffed commodities, particularly exported the maximum by China to the USA, in which India carries a major scope. The following chart shows the top commodities exported by China and the corresponding export share by India to the USA in 2024. There is a cumulative export of the said products by China, valued at USD 212 billion in 2024. In contrast, India had exported only USD 12.5 billion in 2024, opening immense scope to boost the Indian exports to the USA.
Dissecting the chapter on “Electrical machinery and equipment and parts thereof”, there are certain finished goods or intermediary goods produced by China on which the USA levies additional tariffs as the ‘Reciprocal tariff’. For example, Chinese-made battery parts (non-lithium-ion batteries), lithium-ion electrical vehicle batteries, and lithium-ion non-electrical vehicle batteries experience an additional rate of 25%, apart from the ad-valorem duty of 10% by the USA. On electric vehicles, the tariff has been quadrupled from 25% to 100% in 2024. Semiconductors will experience a 100% increase in tariff in 2025.
Battery parts (non-lithium-ion batteries) | Increases rate to 25% in 2024 |
Electric vehicles | Increases rate from 25% to 100% in 2024 |
Lithium-ion electric vehicle batteries | Increased rate from 7.5% to 25% in 2024 |
Lithium-ion non-electrical vehicle batteries | Increase rate from 7.5% to 25% in 2026 |
Semiconductors | Increase rate from 25% to 50% in 2025 |
Solar cells (whether or not assembled into modules) | Increased rate from 25% to 50% in 2024 |
Steel and aluminium products | Increased rate from 7.5% to 25% in 2024 |
Indian semiconductors, copper and critical minerals are exempted from any type of tariffs by the USA. Even the tariff rate of 54% on the Chinese smartphone imports, the analysts are under the notion that the price of a top-end Apple iPhone could jump to $2,300 from $1,599. But with a moderate tariff of 26% on the India-made smartphones in 2025, there lies opportunities for India to focus on this particular sector.
India’s exports of smartphones, including other parts of the phones and various apparatus for transmission or reception of voice, images or other data, both wired or wireless network, have been increasing consistently since 2019, earning a positive trade balance of USD 6.96 billion in 2024, and making India the third largest smartphone exporters after China and Thailand. The trend highlights a significant opportunity to broaden India’s export footprint, particularly in the United States, where Indian exporters hold a distinct comparative advantage over counterparts in China, Vietnam, and Thailand in reinforcing global supply chains. Moreover, the strategic relocation of manufacturing operations by global technology giants such as Apple, Samsung, Google and HP to India further amplifies the country’s position as a critical node in the international electronics value chain. As competing nations grapple with rising trade costs, India’s capacity for resilient, cost-effective production is likely to sustain its appeal among global buyers, positioning the country as a preferred hub for high-tech manufacturing and export.
The upward trajectory can be attributed to the enhanced domestic production capacities, bolstered by the Indian government’s schemes like the Production-Linked Incentive scheme. To fully capitalise on these opportunities, India needs to focus heavily on improving its ease of doing business, ensure policy stability and invest in logistics and infrastructure.
Exports and Imports of smartphones, including other parts of the phones | |||
Year | Gross Exp. in USD Billion | Gross Imp. in USD Billion | Trade Balance in USD Billion |
2019 | 0.24 | 0.38 | -0.14 |
2020 | 0.44 | 0.42 | 0.03 |
2021 | 0.60 | 0.40 | 0.19 |
2022 | 1.53 | 0.59 | 0.94 |
2023 | 4.94 | 0.25 | 4.69 |
2024 | 7.26 | 0.30 | 6.96 |
Source: Author’s computations.
Strengthening supply chain infrastructure is crucial in this domain as increased investments in robust logistics and supply chain networks can ensure timely and efficient delivery of the products, enhancing the reliability for the US buyers and importers. Alongside, adhering to the international quality standards can position the Indian smartphone items as premium offerings, appealing to the discerning consumers in the US. Trade Agreements focusing on electronic items, especially cell phones, semiconductors and other required equipment, can act beneficial for the country itself. Investing in R&D can lead to the creation of cutting-edge technologies and products, establishing India as a hub for innovation in the electronics sector.
Talks are going on about Apple shifting to Indian manufacturing companies to enhance their production. Yet, predictions say that India would need to double its production to meet the US iPhone demand. Considering the already existing iPhone production capacity of Indian manufacturers, to satisfy the US consumers, India should now produce approximately 80-85 million iPhones. Along with the improved investments by Apple, partner companies like Tata Electronics, Foxconn, and Pegatron should also be enhancing their capacities.
The manufacturing bases in India for the improved production of iPhones will be enhanced further in the years to come. Already, Apple had assembled iPhones worth USD 22 billion in the FY2024- 25, a 60 per cent increase year-on-year. India’s production enhancements are in full swing, with Foxconn’s Bangaluru plant being operational by next month, bolstering production up to 20 million units. However, there is a hurdle from China, hindering the path to bolster the production in India, by delaying the supply of the crucial key manufacturing equipment required for the final assembly. Along with this, the shipments of the specialised manufacturing equipment to India are repeatedly being hindered in the Chinese ports.
The Chinese government has reportedly intensified its scrutiny of exports to India, specifically targeting advanced manufacturing equipment such as high-precision lasers, air leak testing stations, and pick-and-place machines, which are crucial for the final assembling of the iPhone. In light of this development, strategic measures should be undertaken to bolster domestic production capabilities in these critical technology segments. Keeping aside the geo-political reasons, India should focus on bettering the quality standards to meet the international standards. Reports speak that Tata’s Hosur factory, which produced iPhone casings, had a yield rate as low as 50%, wherein half of the components failed the rigorous quality checks by Apple. While India doesn’t have a mandatory Bureau of Indian Standards (BIS) standard for iPhone cases, adhering to the following international safety and quality practices is highly recommended:
- Restriction of Hazardous Substances (RoHS) Compliance: Ensure materials are free from harmful substances like lead, cadmium, and phthalates.
- Military standard or MIL-STD-810G Drop Testing, required for the rugged cases
- Scratch resistance, UV resistance, and thermal durability testing for premium products, like the Pro and Max.
The semiconductor industry is growing at a remarkable pace, which will contribute positively to the enhanced production of iPhones. India’s semiconductor market was valued at US$34.3 billion in 2023 and is projected to reach US$100.2 billion by 2032, growing at a CAGR of 20.1% over the forecast period. The improved semiconductor environment will reduce the supply chain dependence. The current scenario showcases that Apple and its contract manufacturers, such as Foxconn, Pegatron, and Wistron, are relying mainly on imported semiconductors from China, Taiwan, and South Korea. Local semiconductor fabs will shorten the supply chains, reducing the dependence on foreign suppliers and mitigating the risks arising from the geopolitical tensions. Local semiconductor production will make India’s iPhone manufacturing more cost-efficient, agile, and geopolitically resilient, enabling Apple to scale its India operations and reduce reliance on China and Taiwan.
The scenario also demands the signing and ratification of the India-USA Bilateral Agreement, with a specific chapter on the electronic items, specifically mentioning the tariff concessions from both ends for a seamless and smooth way to trade electronic items, including phones and their parts thereof. This agreement will also nullify the effect of para-tariffs, reciprocal trade measures, and export restrictions (especially from the U.S. on sensitive technologies) on the supply chains.
Certain areas demand immediate reforms to enhance the Ease of Doing Business (EoDB) in India, which is essential for accelerating the growth of iPhone and other smartphone exports. India currently faces delays in customs clearance, and port congestion increases lead time. Implementing end-to-end digital clearance, single-window customs, and priority clearance for electronics components and finished goods is the need of the hour. Complex tax filing and overlapping state and central regulations increase operational burden. To curb this issue, India needs to harmonise the compliance requirements, reduce the Goods and Services Tax disputes, and ensure prompt refund of export incentives. Another step could be the creation of plug-and-play parks with cutting-edge technology, established on the pre-approved land, including utilities like power, water and improved logistics with better roads and internet connectivity, tailored for electronics manufacturing.