Fentanyl could play spoilsport in India-US tariff advantage over China

The surprise step back by the Donald Trump administration late Friday evening could provide an edge to India vis-a-vis China. The US Customs and Border Protection has exempted smartphones, laptops and other electronic items from reciprocal tariffs—a move that is being seen especially beneficial for Apple, which contract manufactures iPhones in China, India and a bit in Brazil.

India could however lose its advantage if Trump scraps the duty on China because of fentanyl trade.

The exemption will enable China to export smartphones to the US at 20 per cent—a tariff imposed earlier by the Trump administration because of China’s alleged role in fentanyl trade. While in a major respite, China will escape the staggering 125 per cent tariff imposed earlier as reciprocal duties, India will be again able to export mobiles at zero duty to the US. India does not have to pay the mandated 10 per cent tariffs for 90 days and the subsequent 26 per cent reciprocal duties imposed earlier this month.

India could however lose its advantage if Trump scraps the duty on China because of fentanyl trade. Also, the US administration has indicated that there may be a fresh round of tariffs on electronic goods soon, without specifying the details. US commerce secretary Howard Lutnick said on Sunday that the decision to exempt a range of electronic devices was a temporary reprieve.

In his first term, Trump had listened to Apple CEO Tim Cook and exempted penal duties on smartphone imports by the US, keeping it at zero. This time, global tariff war is already in play.

According to a senior consultancy firm executive who has worked with Apple Inc, the equation is simple. ‘’India has a cost disability with China on iPhones of around 12 per cent even after the production-linked incentive (PLI) scheme. With the new tariff structuring, it will have a 8 per cent advantage.” He argues that considering the escalating tensions between the US and China on trade, it will make sense for Apple to increase its share of imports from India —which offers a secure supply source.

In the meantime, the play book of Apple Inc has changed quietly. Since 2018, its strategy has been to slowly hedge the bets in China and shift capacity in India for iPhones. In FY25, about 80 per cent of the iPhones shipped to the US came from China. But in the same year, the growing demand for iPhones in the US was met by India assembled phones including the latest iPhone 16 . Smartphones, led by iPhones, also became the largest exported item in value based on HS (harmonised system) code from India, surpassing diamonds for the first time.

The PLI scheme for mobile devices came in handy. Apple vendors (Tata Electronics and Foxconn) were able to hit exports of ₹150,000 crore (over $17.5 billion) of iPhones at FOB (free on board) value. That’s more than double of what they had committed to achieve under the scheme to the government in the fourth year. Half of that came from exports to US.

As a result, India’s share in the global production value of iPhones has now hit between 18 and 20 per cent. Even if it goes according to the normal plan and as JP Morgan had estimated, the share of global iPhone production should touch 25 per cent by FY 26–the final year of the PLI scheme with a production value of around $ 25-26 billion.

Can Apple speed things up for India? A top executive of a vendor company which supplies to Apple Inc pointed out that the aim should be to rework the global supply chain so that the bulk of the US iPhone demand is met from India, while China takes care of its own large domestic demand, that of Europe and Asia Pacific amongst others. ‘’This will not put Apple Inc under the vagaries of a US-China trade war.”

India must play its part to make this happen. Analysts believe that India would have to nearly double the production value of iPhones in the next 12 or may be 24 months.

On the positive side, both Apple vendors are putting in new plants for assembling iPhones which would be up and running by this year. But a lot will depend on how the Apple management is able to negotiate with the government to be able to expand quickly.

Experts point out that it won’t be an easy ride as the bulk of the supply chain (around 1,000 vendors) is based in China and seamlessly integrated with the iPhone assembly vendors. In India, there are still only a dozen odd local vendors, though numerous players like Tatas, Samvardhana Motherson and Wipro are getting in.

Then there are others who say the supply chain strength is over exaggerated—it took China 30 years to reach a value addition in iPhones of 38-40 per cent, India has

reached 15 per cent for Apple Inc in just four years and expects to go to 20 per cent in a year or so. There are challenges for sure–high input tax on components tops the list. Despite being lowered, there’s still a 2-3 per cent burden on overall cost of assembling a phone for exports in a hyper competitive market. Many lament that the tax structure in India is geared for domestic production and local consumption. Recently, a Niti Aayog report said that high tariffs on components significantly increases the cost of inputs and its simplification is the only answer.

On PLI for mobile devices, which ends in FY26, demand for an extension is getting louder for an export push. The cost disability, for which incentives were given, is still pretty high, industry representatives argue. An official at the ministry of electronics and information technology said no decision had been taken on the issue.

Apple could have other alternatives. Vietnam, for instance, looks attractive. It has a successful story with Samsung which exports over $60 billion of electronics and phones from the country and has BYD and Luxshare Precision making iPads and wearables for Apple Inc already. Like India, Vietnam is in the zero tariff bracket. It has already announced it’s ready to sign an agreement with the US on zero duty across items. But unlike India, Vietnam does not have a vibrant domestic market for iPhones. It also has labour shortage problems to grapple with.

There are also other destinations which are wooing Apple. Saudi Arabia is one such. It wants to build a large electronics SEZ hub and provide attractive incentives to bring in high tech into the country. There’s Singapore, which is known for ease of doing business. And Brazil, which already assembles iPhone 16 for the local market but has challenges in terms of high duties.

While the ball is in Apple’s court, the India story still needs a big push. Business Standard