Apple is rapidly shifting a significant portion of its iPhone production from China to India, marking a pivotal moment for the country’s manufacturing industry. However, this ambition faces new challenges following a recent trade agreement between Washington and Beijing, which has drastically lowered tariffs on imports: Trump’s tariffs on Chinese goods plummeted from 145% to 30%. This unexpected trade ‘reset’ raises concerns about potential stagnation or regression for manufacturing investments that were previously moving to India.
Ajay Srivastava, from the Global Trade Research Institute (GTRI) in Delhi, expresses concern that while India’s cost-effective assembly lines might endure, the prospects for value-added growth are precarious. This is particularly evident against the backdrop of optimism from last month when Apple hinted at shifting production. Interestingly, President Donald Trump previously advised Apple CEO Tim Cook against manufacturing in India due to the country’s high tariffs.
Experts like Shilan Shah from Capital Economics highlight that India is poised to serve as a vital alternative for U.S. supplies, especially as 40% of Indian exports to the U.S. overlap with those from China. Recent surveys indicate an optimistic trend; Indian export orders have surged to a 14-year high, showcasing the country’s potential adaptability to fill the void left by Chinese producers. Nomura has emphasized that India could benefit from the ongoing supply chain shifts, particularly in low-tech and mid-tech manufacturing sectors, including electronics and textiles.
While some analysts maintain that the U.S.-China deal represents a setback, a larger, strategic decoupling between China and the U.S. may favor India in the long run. Prime Minister Narendra Modi’s administration appears to be more open to foreign investments, mitigating former protectionist stances, which could attract multinational corporations seeking to diversify their supply chains away from China. Negotiations of a trade deal between the U.S. and India could position India advantageously within this shifting global landscape, particularly after successfully signing a trade pact with the UK.
Nonetheless, the euphoria surrounding these developments must be tempered by several underlying issues. The recent trade rapprochement has rekindled competition from China and other Southeast Asian nations, such as Vietnam, which continues to be a significant player in foreign investments. Economists from Nomura emphasize that for India to leverage this opportunity, it will need to implement substantial reforms to improve its business climate.
Historically, India has struggled with its manufacturing sector’s contribution to GDP, which has been stagnant at around 15% for the last two decades. Although government initiatives like the Production Linked Incentive (PLI) scheme have been rolled out, progress in attracting investments from displaced Chinese companies has been limited. The Niti Aayog, India’s premier policy think tank, has recognized this ‘limited success’ and indicated that India must address systemic challenges such as high labor costs, complex tax regulations, and the necessity for efficient Free Trade Agreements to compete effectively with its Asian counterparts.