India’s aspirations to emerge as the world’s next big manufacturing hub face a fresh challenge after the United States and China last week agreed to significantly scale back tariffs, potentially dampening investor interest in shifting supply chains to India.
In a surprise development last week, US President Donald Trump’s administration struck a deal with Beijing in Switzerland, slashing tariffs on Chinese goods from 145% to 30%. In comparison, US tariffs on Indian exports stand at 27%, eroding India's competitive edge.
Ajay Srivastava, founder of the Delhi-based Global Trade Research Initiative (GTRI), warned the recalibration could derail the recent momentum India had gained. “India’s low-cost assembly lines may survive, but value-added growth is in danger,” he told bbc.com. He fears investments previously headed India’s way could now stall—or worse, return to China.
The announcement contrasts sharply with the optimism seen in Delhi just weeks ago, when Apple signalled plans to shift a major portion of its iPhone production for the US market from China to India.
Even so, Trump’s revelation that he had urged Apple CEO Tim Cook not to manufacture in India—citing its high tariff regime—has raised eyebrows. “India is one of the highest tariff nations in the world,” Trump reportedly told Cook.
Before the US-China deal was sealed, Shilan Shah of Capital Economics had written that India was well positioned to step in as a supplier of goods to the US, noting that 40% of Indian exports to the US overlapped with Chinese goods.
There were already signs of a pick-up: a recent manufacturing survey found that Indian export orders had surged to a 14-year high. Japanese brokerage Nomura cited “anecdotal evidence” of India benefiting from supply chain shifts in low- and mid-tech sectors such as electronics, textiles and toys.
But that narrative could now be under threat. Some analysts, however, believe that the broader strategic decoupling between the US and China will continue to favour India in the long run. New Delhi has shown greater openness to foreign firms in recent years after a long stretch of protectionist policies.
India is also negotiating a trade agreement with the US, which could open doors for more concessions and market access. The recent trade pact with the UK—featuring tariff cuts on whiskey and automobiles—may serve as a template.
Yet, optimism is tempered by several persistent hurdles. Nomura economists Sonal Verma and Aurodeep Nandi noted that companies are also exploring other Asian alternatives such as Vietnam, which continue to feature on global investors’ radars.
“To truly seize the moment, India must complement any tariff advantage with serious ease-of-doing-business reforms,” they said.
India’s manufacturing share in GDP has remained stuck at around 15% for two decades. The Modi government’s flagship Production Linked Incentive (PLI) schemes have had only limited success in reversing the trend.
India’s manufacturing share in GDP has remained stuck at around 15% for two decades. The Modi government’s flagship Production Linked Incentive (PLI) schemes have had only limited success in reversing the trend.
Even the government’s own policy think tank, NITI Aayog, has acknowledged that India has struggled to attract large-scale investments relocating from China. In contrast, countries like Vietnam, Thailand and Malaysia have leveraged lower tariffs, simpler tax regimes and proactive free trade agreements to expand exports.
A key challenge for India remains its dependence on China for raw materials and components, especially in sectors like electronics. “India’s earnings from making iPhones will only rise if more of the phone is made locally,” Mr Srivastava said.
He pointed out that while India exports the entire $1,000 value of an iPhone to the US, it earns less than $25 per unit—Apple pockets over $450. “Just assembling more iPhones in India won’t help unless Apple and its suppliers start producing components and doing high-value work here.”
He also questioned the long-term benefit of such assembly lines, arguing that the jobs created are of limited quality and the investments made are sometimes smaller than the subsidies received under the PLI schemes.
Citing Nokia’s Chennai factory from 2007 as a model where suppliers co-located and built an ecosystem, Srivastava said that today’s smartphone manufacturers largely import parts and focus on tariff reductions, rather than local capacity building.
There are also concerns that Chinese companies might use India as a conduit to reroute exports to the US. While the idea has been floated by Indian officials as a means to boost domestic manufacturing, experts warn that it could further dilute India’s ability to build homegrown industrial capabilities.
“Such backdoor trade may inflate export numbers, but without actual economic gain,” Srivastava cautioned.
The broader picture, analysts say, reveals a reality that is far more complex than headline-grabbing announcements from global giants like Apple suggest. India’s dream of becoming the world’s factory remains distant unless deep structural reforms are undertaken.
“Slash production costs, fix logistics, and build regulatory certainty,” Mr Srivastava urged in a recent social media post.
“This US-China reset is damage control—not a long-term strategy. India must play the long game or risk being side-lined.”
