Donald Trump’s tariffs: Why it could be a key manufacturing moment for India
By Kunal Chaudhary
The U.S. has announced a 90-day temporary pause on the imposition of the higher reciprocal tariffs on its trading partners. In a notable policy shift, the announcement came just hours after higher reciprocal tariffs had taken effect.While the temporary pause signals a potential softening of the tariff approach amid ongoing negotiations, the universal 10% base tariff on all imports will remain in place during this period. At the same time, the U.S increased tariffs on goods from China to 125%, citing China’s “lack of respect” after the country retaliated by announcing an 84% on U.S. imports.
The U.S. reciprocal tariffs on China are set to cause major disruptions to global supply chains, forcing American companies to explore alternative suppliers. This creates a significant opportunity for India to step up as a key trading partner, especially as trade conflicts with China continue. As global businesses look to further diversify their supply chains away from China, India has the chance to strategically position itself as a viable alternative, capitalizing on this shift to boost exports, attract investments, and enhance its manufacturing capabilities.
Electronics is one of the key sectors for India to gain with India’s exports valued at nearly USD 14 Bn. Electronics play a critical role in global trade, with countries like China dominating the exports landscape (i.e., with a market share of >30%). Though India’s export market share is in low single digits and steadily growing, the US’s 125% tariff on Chinese electronics imports, including smartphones, laptops, and other electronic devices, makes Indian manufactured products more competitive in the American market.Global brands such as Apple, which already use India as a key export hub, would likely increase production in the country to avoid higher costs associated with Chinese imports. This could lead to a surge in Indian exports of finished electronic devices and even components like batteries, circuit boards, and displays.
The additional demand for non-Chinese suppliers, also presents a unique opportunity for Indian Electronics manufacturers to expand and scale up operations and capture a larger share of the global market. India’s strategic initiatives such as the Production-Linked Incentive (PLI) schemes for smartphones, IT hardware, telecom products, and the newly introduced PLI for electronics component manufacturing, can collectively enhance India’s competitiveness by lowering cost barriers for exports.
As a strategic move, the Trump administration continued the exclusion of semiconductors from reciprocal tariffs, acknowledging their irreplaceable role. Semiconductors being crucial for national security and technological advancement, disrupting their supply could have led to significant implications.
The U.S. is actively promoting domestic semiconductor manufacturing through the U.S. CHIPS Act, which allocates $52 Bn for local semiconductor production. With significant investments already being made in new facilities and technologies by large chip makers of world like Intel & TSMC, exempting reciprocal tariffs supports this domestic growth strategy. Further, the current global semiconductor supply chain is deeply entrenched and complex, with maximum production already taking place in Taiwan & South Korea, disrupting this network would be challenging and relocating the existing capacity would take decades and investment of very large scale.
It is expected that the current pause offers a window for diplomatic engagement for initiating negotiations for trade agreements with the U.S. The pause in reciprocal tariffs aligns with India’s broader efforts to enhance US-India trade relations as both nations actively work towards a Bilateral Trade Agreement (BTA) aimed at doubling bilateral trade to $500 billion by 2030. To maintain a strong position in global trade and further strengthen its role as an alternative global manufacturing hub, India can look to deepen economic cooperation with the US, forging strategic partnerships and collaborations with U.S.that promote mutual benefits, minimize reciprocal tariff and drive sustained long-term export growth.
While the coming months will shape the future of global trade dynamics, the temporary suspension of US reciprocal tariffs provides India a unique window to enhance its bilateral relations. By addressing existing challenges, improving market access to the US, and leveraging strategic initiatives like “Make in India,” India can position itself as a reliable global supplier and accelerate its economic growth trajectory.
(Kunal Chaudhary is Tax Partner, EY India. Vaibhav Anand, Director-Tax, EY India, also contributed to the article.)
