Tariff Tango: How Trump’s Next Move Could Rewrite India’s Manufacturing Playbook

India's aspiration to emerge as a manufacturing powerhouse of the world is running into fresh headwinds as US President Donald Trump's trade strategy is changing gears. Hopes of India benefiting from Trump's high tariffs on Chinese exports have been overshadowed by what has happened: the US has signed trade pacts with China and the UK in recent times, reducing the tariff gap which had made India competitive.

 

Apple CEO Tim Cook recently revealed that the majority of the iPhones to be sold in the US this quarter will be produced in India, reflecting the increasing importance of India in international supply chains. But the new US-China trade agreement, featuring a temporary ceasefire and deep tariff cuts for 90 days, is poised to pull the rug out from under India's manufacturing momentum. The agreement brings US-China tariffs to near parity, making it less appealing for American businesses to move operations out of China to India.

 

As a retaliation, India will impose retaliatory tariffs on some US goods, in retaliation to ongoing American tariffs on Indian exports of steel and aluminium. A World Trade Organization notification explains India's decision to suspend concessions, which would escalate trade tensions between the two countries. The move comes at a delicate time, with India and the US negotiating to conclude a broader free trade agreement, and this action would be bound to place a shadow on the negotiations.

 

Industry analysts warn that although low-cost assembly operations can continue to operate in India, more substantial manufacturing investments can be put on hold or even reverse to China unless India can establish a sustainable competitive edge. The Federation of Indian Export Organisations said the US-China deal will further intensify competition for Indian exporters in key markets further denting India's manufacturing aspirations. While both countries are gearing up for a potential tariff war, the future of India's factory-led growth is at stake, with global investors waiting with bated breath in Washington.

 

Source: The Economic Times