Customers queue outside an Apple store ahead of its opening hours during the first day of sale of the iPhone 15 smartphone in Mumbai, India, on Friday, Sept. 22, 2023.
Dhiraj Singh | Bloomberg | Getty Images
This report is from this week’s CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse and the big businesses behind its meteoric rise. Like what you see? You can subscribe here.
The big story
The general consensus was that U.S. President Donald Trump and Indian Prime Minister Narendra Modi had a successful meeting in Washington last month. What went wrong — and why is Apple caught in the middle?
To get everyone up to speed — trade talks seem to be breaking down between the two countries ahead of the April 2 deadline when Trump’s reciprocal tariffs on India are set to go into effect.
Trump has long criticized India for its high tariffs, among the highest in Asia. Analysis from Barclays shows that the weighted average of India’s tariffs on all imports is 11.5%. Another key concern for Washington is the widening U.S.-India trade deficit.
Last week, India’s Commerce Minister Piyush Goyal went to Washington to present further concessions, including slashing tariffs on key U.S. imports in the hopes that, in exchange, India would be granted an exemption from Washington’s reciprocal tariffs. However, Trump’s trade team doesn’t seem to be budging, per sources close to New Delhi. That’s raising alarm bells.
The technology industry stands to lose — particularly Apple which manufactures roughly 15% of its iPhones in India, according to Bank of America analyst estimates.
Finished smartphones entering India currently face a 16%-20% tariff, whereas tariffs on Indian phones sold into the U.S. are at 0%, according to Barclays.
“If the Indian exports of smartphones, which have picked up recently — were to face similar tariffs in the U.S., it could deal an early life-cycle blow to the [Indian] electronics industry, reversing the entire China+1 narrative,” according to Venugopal Garre, Bernstein’s head of India research.
Garre believes that the additional cost of tariffs will make Indian electronics, including the iPhones manufactured in the country, less competitive compared to devices manufactured in other countries.
Rejuvenating India’s manufacturing sector
Bank of America analysts also believe that proposed tariffs on India will likely drive iPhones prices up.
This matters. Apple has been the poster child of India’s manufacturing revitalization, seen by many as a case study for how a foreign company can win in the country. Goyal referenced Apple’s success when pitching U.S. semiconductor companies to expand into India.
Nvidia is currently working with India’s Reliance Industries on AI research, while AMD and Micron have pledged to expand in India. Apple CEO Tim Cook, who has cultivated a strong relationship with Modi, went to the country for the opening of four retail stores in 2023.
India has played an important role in helping Apple diversify its supply chain and become less dependent on China. In addition to iPhones, it has begun manufacturing other products in the emerging market, including iPads and AirPods.
“45% of Apple’s total revenue is built in China, but they want to get that down to the 30% level,” said Gene Munster, managing partner at Deepwater Asset Management, to CNBC over the phone. However, experts said higher tariffs could challenge Apple’s expansion and reduce the company’s overall return on investment in India.
“My guess is that Apple would want to send a message to New Delhi to motivate them to negotiate and push for an equal tariff structure,” said Patrick Moorhead, a senior technology executive and co-founder of TheSixFiveMedia.
CNBC reached out to Apple for comment and has not heard back.
Moorhead has been studying Apple’s supply chain and believes it does have the ability to shift some manufacturing between its Asian manufacturing locations across India, China and Vietnam, should it need to do so.
At this point, the only country that is more insulated from tariffs would be Vietnam, which is likely due to the low trade imbalance between the U.S. and Vietnam, Moorhead told CNBC over the phone.
Minimizing impact of tariffs
There are other options.
When looking at potential strategies technology companies can use to limit the impact of China tariffs, analysts at Morgan Stanley write that one alternative is to ship “U.S.-bound near finished goods from China to a 3rd party country before declaring the goods finalized.”
The same could apply to India.
If the trade war picks up speed, technology companies may also be incentivized to not just explore diversifying their supply chain into one to two additional countries, but three or four, to ensure they can pivot as needed. It’s certainly a big undertaking. Setting up shop in a new country can take three to five years. As supply chain experts shared with CNBC, it takes time to set up a new plant, build relationships with local suppliers and hire the right talent, all while getting the required clearances from the local government.
However, with tariffs increasingly becoming an economic weapon of choice, multinationals like Apple may have to use their pile of cash to spread out their manufacturing footprint even more than they have already. China+1 may need to be changed to China+3.
That could mean that Apple produces fewer phones in India than previously estimated.
Supply chain flexibility, while expensive, could be the key to weathering the tariff storm for Apple. What that does to India’s ambitions of being the go-to destination for companies looking to move away from China is another matter altogether.
Need to know
Inflation in India drops more than expected in February. The country’s consumer price index came in at 3.61% on an annual basis, the country’s Ministry of Statistics and Programme Implementation said Wednesday. Economists polled by Reuters had expected a reading of 3.98% for the period. This is first time since last summer that inflation has come in below the Reserve Bank of India’s target of 4% and marks the lowest monthly print since July 2024.
Benefits of listing on India’s National Stock Exchange. Entrepreneurs or startup founders should seize India’s advantages and list on India’s National Stock Exchange, the bourse’s CEO Ashish Kumar Chauhan said at CNBC’s CONVERGE LIVE event in Singapore on Wednesday. India is in a place where there’s “a lot of brains, a lot of enterprise and very little capital is required,” he said, and pointed out that the Indian market had the largest number of listings in the world in 2024.
IndusInd Bank urges calm after spotting accounting discrepancy. The lender informed Indian exchanges on March 10 that it had discovered during an internal review issues regarding positions on derivatives trading. As a result of the lapse, the bank estimates that its net worth will take a 2.5% hit. However, IndusInd reassured investors it is still well capitalized, causing shares to rebound on Wednesday after plunging Tuesday.
What happened in the markets?
Indian stocks continued their gains this week.
As of 11.15 a.m. local time on March 13, the benchmark Nifty 50 index had risen 0.21% while the broader Sensex index was 0.15% higher.
The benchmark 10-year Indian government bond yield edged down slightly to 6.708%.
On CNBC TV this week, Pramod Gubbi, founder of Marcellus Investment Managers, thinks the Indian government’s tax cuts in its recent Union Budget are not “meaningful enough to move the needle” on Indian consumption stocks. That’s partly because the country experienced “a good three years of strong consumption growth” after the pandemic, fueled by bank loans to retail firms and consumers, which led to leveraged spending Gubbi said. Hence, consumers are saving more to pay off that debt and pulling back on expenditures.
Meanwhile, Maersk North America President Charles van der Steene tells CNBC’s Lori Ann LaRocco that “tariffs will never disrupt the supply chain.” While trade barriers may affect one aspect of the global supply chain, there will be other countries stepping in to make up for that disruption. India, in particular, will retain its importance within the global supply chain because the South Asian nation provides companies with production capacity as firms diversify away from China because of Trump tariffs.
What’s happening next week?
India releases data on its wholesale price index for February on Monday, and market watchers will hope it comes in cooler than expected, like the month’s consumer price index. Meanwhile, the U.S. Federal Reserve concludes its meeting on Wednesday, during which it is expected to hold interest rates steady.
March 14: India balance of trade for February, U.S. University of Michigan Consumer Sentiment Survey for March, U.K. gross domestic product for January
March 17: India wholesale price index for February, China industrial production and retail sales for January to February, U.S. retail sales for February
March 19: U.S. interest rate decision, Euro zone consumer price index for February
March 20: China one- and five-year loan prime rate decision, U.K. interest rate decision
