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Can Trump's tariff war derail India's manufacturing dreams?

Experts feel US's imposition of 25 percent tariff is a negotiation tactic by the US president. They admit that it will put pressure on electronics manufacturing, but the impact on the auto industry may not be as significant

By Manu Balachandran Forbes India Staff

Published: Jul 31, 2025 02:06:14 PM IST

Updated: Jul 31, 2025 02:32:33 PM IST

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US accounts for around 25 percent of iPhone shipments, at around 60 million units per year. Image: Ashish Vaishnav/SOPA /LightRocket via Getty Images

For several years now, India’s manufacturing sector has been on a hot streak.

From the likes of Apple to Foxconn and domestic heavyweights such as Bharat Forge and Tata Electronics, the sector has seen a renewed vigour, largely due to the government’s favourable policies to promote manufacturing in the country. That has meant that India, for instance, has overtaken China to become the top supplier of smartphones sold in the US, after Apple decided to shift its production of iPhones to India.

Now, with US President Donald Trump’s decision to push for a 25 percent tariff on India—as he looks to bridge the trade deficit that countries had with the US—manufacturing in India, and the cost advantage that it held, especially those items that are eventually exported to the US, could face some trouble.

“We believe that it's a classic Trump negotiation tactic and any tariff number at this point has higher chances of changing again, but it will put some pressure on India's electronics manufacturing,” Tarun Pathak, research director at consultancy firm Counterpoint Research, tells Forbes India. “Support for policies like PLI (production linked incentive) becomes even more important to reduce cost disabilities with other rival nations, including China and Vietnam, especially since PLI is already in its last year.”

That means, for now, Apple will be faced with a dilemma, especially since the US accounts for around 25 percent of iPhone shipments, at around 60 million units per year. “If this tariff number stays, then some of the electronics like iPhones are likely to be expensive for the US consumers as both China and India will have higher duties unless Apple decides to absorb,” adds Pathak. “For now, it will be more of a wait-and-watch situation.”

Trump imposed a 25 percent tariff on India, effective August 1. He is also expected to levy a penalty on India due to its decision to purchase oil from Russia, for which he has not yet announced the rates.

Also read: US Volatility: Is India insulated?

“The good thing is that it’s not final as the negotiation talks are still on and we have a delegation expected in India on August 22 to discuss the business contours,” says Faisal Kawoosa, chief analyst and founder at technology consultancy firm Techarc. “Also, the present US tariff regime, though reciprocal, does not give any country a significant advantage. For instance, China attracts 30 percent and India 25 percent. So, the gaps aren’t wide enough that it will cause any brand, even Apple, to think of reducing its focus or divesting out of present countries. I don’t see the risk of Apple’s story in India derailing. Yes, momentarily we might see a slowdown till all things get more clarity.”

Besides the Apple story, India’s auto component manufacturers, who exported $2.2 billion worth of auto parts to the US in 2024, will also face the 25 percent tariff. In all, India sells about $87 billion worth of annual goods in the American market. But the impact may not be as significant.

“The Indian auto component industry demand continues to benefit from a diversified mix of end-user segments and geographies, with over 70 percent of its revenues coming from domestic sales,” ratings agency ICRA said in a statement in April. “The US constituted only close to 8 percent of the overall industry revenues in FY24. Export of auto components to the US grew at a compounded annual growth rate of 15 percent during FY20 to FY24.”