India’s Tariff Relief Illusion

THE TAKE 

Why Celebrating Lower Tariffs Misses The Bigger Battle

US president Trump on Friday exempted smartphones, computers, and other tech devices and components from his reciprocal tariffs.

The US Customs and Border Protection guidance, issued late Friday evening, comes on the heels of a 145% tariff on products from China—a move that would have crippled companies like Apple, which manufactures iPhones and most of its products in China.

The guidance also includes exclusions for other electronic devices and components, including semiconductors, solar cells, flat panel TV displays, flash drives, and memory cards.

The White House said on Saturday that the exemptions were made because Trump wants to ensure that companies have time to move production to the United States.

Excellent news. Not.

None of this, obviously, changes the uncertainty that has now gripped global businesses and is keeping everyone—from small entrepreneurs to Fortune 100 business leaders—uneasy and tossing and turning in their beds.

That includes India, by the way.

Which is why some of our early celebrations around tariff twists should concern us.

When the first round of reciprocal tariffs was announced two weeks ago, the garment and apparel industry, for one, pointed out that India was being hit with a 26% tariff, while close competitors like China and Vietnam were being hit with higher rates.

But when it comes to the United States, reciprocal tariffs on Bangladesh stood at 37%, compared to India’s 26%. Meanwhile, Sri Lanka, another major garment-exporting nation, faced tariffs of 44%.

Needless to say, we appeared to have an advantage in a duty structure that even the sharpest economists have struggled to explain or justify.

Tariff Advantage Or Policy Mirage?

The electronics industry put out a similar statement yesterday.

The Indian Cellular and Electronics Association rightly pointed out that imports of smartphones and laptops to the United States from China will still be hit with a 20% tariff—even after the new exemptions.

On the other hand, India and Vietnam will continue to enjoy zero tariffs on smartphones, laptops, and tablets exported to the US.

The world being what it is, tariffs exist at various borders—some apparent, some not. If the US kept tariffs low for many years, it did so to make its industry globally competitive. And it has.

It’s not clear how the current strategy will change that, but I’ll come to that in a bit.

Take this example, which I’ve heard cited before: Bangladesh enjoys a 9% to 12% preferential tariff advantage on its exports to the European Union. That makes a big difference—more than 60% of its apparel exports head to the EU, according to some estimates.

This advantage is offered to Bangladesh as a Least Developed Country. However, as things stand, it is set to graduate to developing nation status next year. But Bangladesh has won a grace period and will now graduate only in 2029, meaning it will continue enjoying tariff benefits on exports to the EU.

So, what have Indian apparel companies done about this?

They’ve set up factories in Bangladesh—though tariffs are not the only reason. Bangladesh now has a strong ecosystem when it comes to low-cost, high-scale apparel production.

Speaking of ecosystems, The Wall Street Journal (WSJ) recently carried an interesting insight from a professor at Arizona State University who worked on organisational development for Apple in China.

“It took China 40 years to build a complex manufacturing supply chain. We used to have that. It’s a disaster that we let it go.”

According to him, over time, Apple helped build an ecosystem of more than 1,000 suppliers in China. It taught them how to operate more efficiently, so they competed with one another—driving down Apple’s costs.

Apple’s manufacturing partner Foxconn built a compound so large in Zhengzhou that it’s known as “iPhone City.”

The professor also told WSJ that when he looked for alternatives, other countries didn’t offer the same promise as manufacturing hubs. India showed promise with its vast workforce, but things moved slowly. That’s why Apple focused most of its Foxconn investments near Chennai which it may have found most suited to its objectives.

Still, the shift has begun. 

Apple Inc. assembled $22 billion worth of iPhones in India in the 12 months ending March, increasing production by nearly 60% year-on-year, Bloomberg reported. India now accounts for 20%—or one in five—of Apple’s global iPhone output. These are likely factory gate values, not retail, the report added.

Why Supply Chains Matter More Than Tariffs

But there’s nothing to say that the current deadline for American companies to shift manufacturing back to the US won’t be moved up—maybe next month, or even next week. There was no clear timeline in Friday’s announcement.

As it turns out, Donald Trump appeared to be hitting the reverse gear on Sunday itself.

“There was no Tariff “exception” announced on Friday. These products are subject to the existing 20% Fentanyl Tariffs, and they are just moving to a different Tariff ‘bucket’,” he said on social media.

This part was apparent but he then added the US was taking a look at semiconductors and the whole electronics supply chain in the upcoming National Security Tariff Investigations.

So tariffs would apply sectorally on semiconductors, not so much on countries. This is the latest thinking.

So where will all this leave India?

The reason China hasn’t blinked in the ongoing trade war is because it knows what it takes to build real manufacturing capacity.

India has its own strengths and is in a reasonably good negotiating position with the United States. We can afford to open up select sectors for cheaper imports, even as we hold firm on sensitive areas like agriculture and dairy.

But the bigger problem is assuming—even temporarily—that India can score easy wins like a Bangladesh, due to tariff differentials.

That is unlikely to work in the real world, especially when other major importers like the European Union apply uniform tariff treatment to all countries. 

So India must still compete evenly with China and others in those markets.

The US is a major importer, but it’s not the only one.

India Needs a Strategy Not Just a Shortcut

As The Core pointed out last week, India is yet to articulate a clear strategy for navigating this shifting global trade landscape—something that could have been laid out even in the Union Budget speech on February 1.

The absence of a formal roadmap suggests that we are currently banking on short-term tariff gains as a policy approach.

This is not to diminish the backchannel discussions between trade officials in Washington and New Delhi. Those conversations are important and will likely yield results in the coming months.

But if India wants to hold its ground in global trade, it must focus on reducing factor costs and becoming genuinely competitive and productive—whether in electronics, apparel, or any other sector.

And at the least, lay out very comprehensive roadmaps and so formally.

Ease of doing business is important. But the cost of doing business is critical.

Bangladesh, as a smaller economy, finds it useful to maintain its Least Developed Country status—at least for the sake of tariff benefits.

India, on a very different economic trajectory, has no choice but to fight this battle on the terms set by the biggest—and perhaps the toughest—players in the game.

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CORE NUMBER

Rs 31,575 crore

This is the total amount foreign portfolio investors (FPIs) have pulled out of Indian equity markets in April so far, amid heightened global volatility triggered by the Trump administration’s sweeping reciprocal tariffs. The outflows reflect investor caution as trade tensions rise and global growth prospects dim, according to Mint. Still, the pace of selling has slowed compared to earlier months: FPIs withdrew Rs 34,574 crore in February and Rs 78,027 crore in January. Analysts expect sentiment to stabilise once market uncertainty clears, especially if India’s macro fundamentals improve in line with the 6% growth outlook for FY26.

—🌐 India Inc Worried! Amidst rising global trade uncertainty, chief executive officers of Indian multinational corporations (MNCs) are flagging potential fallout. TCS chief K Krithivasan told Reuters that clients in retail, travel, and auto sectors may resort to cost-cutting if US tariffs persist, although he added that banking remains stable. Meanwhile, IndiGo CEO Pieter Elbers told PTI  that although the airline’s growth plans remain unchanged, the company is worried about global tariff moves and is urging the government to review seat allocation frameworks. IndiGo wants domestic carriers prioritised, citing the aviation sector’s large job-creation potential.

—🪨 Marginal Decline in India’s Coal Imports. India imported slightly less coal this financial year than the one before, according to The Economic Times. Specifically, India’s imports reduced by 1.4%, from 244.77 million tonnes in April-Feb FY24 to 240.77 million tonnes in April-Feb FY25. That’s thanks to the country’s increasing domestic stockpiles, which increased by 5.7%, from 878.55 million tonnes to 928.95 million tonnes. Analysts say that the large stockpile is likely to reduce dependency on coal imports; but as demand for power picks up ahead of summer, this position might change.

—❄️🥵 Incoming: High AC Sales and Prices! The occasional rainfall in South India and thunderstorms in the North have slowed the sales of air conditioners (ACs) in India, according to a PTI report. But, representatives of Blue Star, Haier and Samsung say they are hopeful they’ll grow by double-digits in the summer months. They also said they are increasing the price of ACs by 5%, because of increasing costs of raw materials like copper, steel, aluminium and the volatile dollar-rupee exchange rate.

— 🇺🇸🪪 Carry Your IDs, Or Else! If you’re a foreign national living in the US, you must carry proof of your legal status at all times, or you could face criminal charges, according to a Livemint article. The law has been active since April 11, and the US implemented it to primarily target undocumented people living in the country, who US President Trump is eager to deport. This new rule is especially pertinent to Indians, who form one of the largest immigrant groups–legal and otherwise–in the US.

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas