Mint Primer: Will US tariffs on Indian goods hit iPhones prices?

US president Donald Trump says that starting 2 April, reciprocal tariffs will be imposed on India and others. With Indian electronics being a key item imported by US tech firms, this raised concerns about how the tariffs will impact a multi-billion-dollar revenue stream for India.

What exactly has the US threatened?

Trump, while addressing a joint session of the US Congress, labelled tariffs, or import duties, imposed by various nations on goods exported by the US as “very unfair”. He also singled out “higher than 100%” tariffs that he said India currently imposes on automotive imports from the US.

Although Trump did not specifically refer to electronic goods in his address, strictures set to be imposed by the US from 2 April could add tax liabilities to electronic goods imported by technology companies from India, too. Therefore, brands that are using India as a manufacturing hub now could see their overall costs increase. Such a situation would theoretically put pressure on the advantage that India currently holds over other countries as a low-cost, electronics manufacturing destination for global brands such as Apple.

Also read |  Mint Primer: If America slows, how might it hit India, others?

What would the scale of impact be on India?

According to a central government estimate, India’s net electronics exports to the world stands at $30 billion. Nearly 60% of this comes from smartphones, and two-thirds of this are driven by Apple’s iPhones. The Centre has projected the net goods and services exports from India to the world to come to $800 billion in FY25, and merchandise exports (i.e. of physical goods only) at nearly $450 billion. Electronics, thus, account for nearly 4% of all exports, and 7% of goods exports from India. These figures are expected to grow steeply as India ramps up factories to make semiconductors and higher-value components within the next two financial years.

Also read |  Mint Primer | Will your grocery bills pinch less?

What tariffs does India impose on the US?

The Centre in the interim Union budget last year reduced import tariff on smartphones from 20% to 15%. This means that devices made by the US outside of India are subject to an additional 15% tax before being sold domestically. Similarly, smartwatches currently face a 20% import duty. Various components of electronics also face a range of import taxes, as India pushes to have more components manufactured locally.

Also read |  Mint Primer: What’s as fast as sound, yet moves at a snail’s pace?

Would US tariffs impact India severely?

India’s electronic manufacturers, at least for now, think not. India is a cheap market in various cost factors that allow tech manufacturers to build large factories. While reciprocal duties on exports from India to the US would reduce cost benefits for the likes of Apple and Samsung, most executives believe the tariffs won’t hurt India’s advantage. But, with the Centre’s incentive scheme for electronics assemblies ending soon, the likes of Dixon Technologies, Tata Electronics and Kaynes may need to move from assembling to manufacturing to cement India’s position as a leading electronics maker.

Also read |  Trump’s $5 million card: Will there be a gold rush?

Would this mean more expensive gadgets?

Trade policy experts maintain that reciprocal tariffs are “akin to a geopolitical conflict”. If neither nation backs down from heavy taxes, brands may be forced to increase prices to maintain operating margins—which in turn would indeed lead to electronics items becoming more expensive across the world. Analysts are thus keeping a keen eye on an India-US bilateral trade treaty expected later this year, where electronics and technology sectors are expected to be key discussions. A mutual understanding can give a major fillip to India, in its bid to outpace China’s firm seat at the top of the global tech table.

Also read | Mint Primer: What the US Fed’s hawkish turn means for India