Tariff impact on India's iPhone exports unclear despite US exemption

American President Donald Trump has announced that even while he plans to impose 100 per cent duty on imported semiconductors and chips, companies like Apple Inc (and manufacturers of laptops and personal computers) that have their manufacturing base of critical components in the United States (US) but assemble their products (like iPhones) in foreign countries will continue to be exempt from duty.

 

Apple Inc Chief Executive Officer Tim Cook has announced the company is increasing its investment in the US by another $100 billion-600 billion in four years.

 

In a press conference with Cook at the White House, Trump said: “We will be putting a tariff of 100 per cent on semiconductors and chips, but the good news for companies like Apple Inc is that if you are building in the US, we are committed not to charge them (tariffs on the final product). “

 

The announcement came just a few days before the report of the Department of Commerce on investigation under Section 232 (of the Trade Expansion Act), aimed at protecting national security on semiconductors and embedded products with semiconductors (mobiles, laptops, personal computers, etc), and is expected to be placed before the President soon.

 

However, the impact of the move on India could be varied compared to what it plans to do with China. Currently tariffs on mobile phones imported from India have zero duty, but China has been slapped a fenytyl tax of 20 per cent.

 

However, experts in the business say the advantage India has on tariffs is neutralised by two factors: The cost of producing iPhones in India is around 10 per cent higher than in China. Hence despite the production-linked incentive (PLI), there is a handicap. And, because of a vibrant supply chain, China can absorb another 10-12 per cent of the increase in cost due to tariff through subsidies from the government and the advantage of scale.

 

The PLI scheme for mobile devices in India is ending next year and the supply chain is in its infancy.

 

The scenario could change even more if the US removes the fenytyl tax on China, bringing it down to zero like that for India and hectic negotiations are on between the two countries to do so.

 

Regardless of Trump’s position on duty, the reality under Section 232 is that it has not imposed the same tariffs on all countries. This is evident in the differential tariffs on the United Kingdom and the European Union on various products compared to others.  

 

And considering its latest salvo against India, it could well impose a hefty duty on semiconductors for India and leave China out. In simple calculation, a 100 per cent duty effectively means a 40 per cent duty on a smartphone as 35-40 per cent of its cost of production is from semiconductors.