Last week, former US President Donald Trump slashed tariffs on Chinese goods—from an average of 145% to just 30%—in a surprise agreement with Beijing brokered in Switzerland. For comparison, tariffs on Indian goods remain at 27%. The move has sparked concern in Delhi that the long-anticipated shift of manufacturing investment away from China and toward India may now stall—or even reverse. “India’s low-cost assembly lines may survive, but value-added growth is in danger,” said Ajay Srivastava of the Global Trade Research Institute (GTRI), a Delhi-based think tank.
From Optimism to Uncertainty
The reset comes just weeks after a wave of optimism swept India. Apple announced plans to shift the majority of its US-bound iPhone production from China to India, signaling a major vote of confidence. But the mood quickly soured when Trump revealed he had personally advised Apple CEO Tim Cook against manufacturing in India, calling it “one of the highest tariff nations in the world.”
Economists had seen signs that India was beginning to fill the void left by China. Indian manufacturers recently saw export orders surge to a 14-year high, and Japanese investment bank Nomura noted growing anecdotal evidence of India benefiting from trade diversion in electronics, textiles, and toys. But the US-China thaw changes the calculus. “There’s now a real risk that investment moving to India could slow, or even flow back to China,” Srivastava warned.
A Glimmer of Long-Term Hope
Despite short-term setbacks, some analysts remain cautiously optimistic about India’s long-term prospects. “Strategic decoupling between the US and China is likely to continue, and India remains well-positioned to benefit,” wrote Shilan Shah of Capital Economics.
India has taken steps to open up its economy. The Modi government recently signed a trade deal with the UK, cutting tariffs on protected sectors such as whiskey and automobiles. A separate India-US trade deal is currently under negotiation, which could further align Delhi with Washington. Yet even with policy tailwinds, major obstacles persist.
Reforms Needed to Seize the Opportunity
Sonal Verma and Aurodeep Nandi, economists at Nomura, caution that foreign investors continue to eye other Asian alternatives. Countries like Vietnam remain attractive due to easier business conditions and better trade integration. “India must complement any tariff arbitrage with serious ease-of-doing-business reforms,” they wrote.
India’s manufacturing sector has long underperformed, contributing just 15% to GDP for two decades. Government schemes like the Production Linked Incentive (PLI) program have delivered modest gains but failed to catalyze a full transformation.
Niti Aayog, the government’s policy think tank, has acknowledged India’s limited success in attracting supply chain relocations. In contrast, peers like Vietnam, Cambodia, and Malaysia have made significant strides thanks to simpler tax structures, lower tariffs, and aggressive trade diplomacy.
Limited Value Capture, Low-Quality Jobs
Even where India does attract major players, the economic benefit remains narrow. Apple may be moving assembly to India, but the bulk of iPhone components are still imported from China. According to Srivastava, India currently earns less than $25 per iPhone made, while the product is exported at a $1,000 price tag—an imbalance that inflates trade figures without generating real income.
“Just assembling more iPhones in India won’t help unless Apple and its suppliers begin manufacturing components and doing higher-value work locally,” he said. Moreover, assembly jobs offer limited pay and career growth. Unlike Nokia’s 2007 Chennai plant, where suppliers clustered to build a full ecosystem, modern smartphone makers prefer to import parts and lobby for lower tariffs, often investing less than what they receive through government subsidies.
A Risky Reliance on China
Adding to the complexity, India remains heavily dependent on China for raw materials and components. This limits its ability to become a truly independent manufacturing hub and exposes it to geopolitical and supply chain risks.
There are also concerns about Chinese firms using India as a transit point to bypass US tariffs. While India’s top economic advisor has suggested attracting more Chinese businesses to set up export-oriented factories, experts warn this could undermine the development of domestic capabilities.
A Long Road Ahead
India’s ambitions to rival China as the world’s factory are still far from realization. High-profile moves by companies like Apple make headlines, but without deep reforms and ecosystem-building, the underlying fundamentals remain weak.
“Slash production costs, fix logistics, and build regulatory certainty,” Srivastava urged policymakers in a recent post. “This US-China reset is just damage control. India must play the long game—or risk being sidelined.”
