India-US trade ties: For smartphone exports, it's all or nothing

The imposition of reciprocal tariffs on all products by the US could adversely impact or present an opportunity to boost smartphone exports from India, led by Apple Inc that has now become the largest exports to the US based on HS code.

 

India imposes an effective import duty of 16.5 per cent on smartphones, whereas the US has a zero-duty policy.

 

The importance of smartphone exports to the US can be gauged by the fact that, until November of FY25, exports from India amounted to $4.18 billion. This made smartphones the largest export to the US in HS code terms, well ahead of non-industrial diamonds, which stood at $3.30 billion.

 

In FY24, mobile device exports to the US reached $5.56 billion, placing them in second position, just behind diamonds at $5.60 billion. India is a key smartphone export hub, with 50-55 per cent of iPhones exported from India going to the US.

 

The imposition of a 16.5 per cent duty by the US on Indian smartphones would be advantageous to China, which still produces the majority of iPhones, as its import duty remains at zero. Even after the recent imposition of a 10 per cent duty on Chinese products by the Trump administration, China would still maintain a tariff advantage of 6.5 percentage points over India.

 

The tariff would also make Vietnam, a key competitor in smartphone exports, highly attractive, as it also benefits from a zero-duty policy on mobile imports. This would result in a 16.5 percentage point tariff advantage over India.

 

Industry sources suggest this development will have consequences. Smartphone companies may shift their exports from India to other markets, such as Western Europe. However, given the size of the US market, this would negatively impact the strong growth in smartphone exports that India has witnessed in recent years, largely due to the Production-Linked Incentive scheme for mobile manufacturing. In FY24, smartphone exports reached $15.5 billion, and this financial year, they are expected to hit $20 billion. In January alone, India exported $3 billion worth of smartphones, its highest-ever monthly export figure.

 

Analysts suggest the situation could change if India decides to remove the import duty on smartphones. For the US, this would have little impact, as it barely exports smartphones to India. Currently, 95 per cent of smartphones sold in India are currently made in the country.

 

If the Indian government removes the import duty, India would gain a 10 percentage point tariff advantage over China. While China could devalue the yuan to offset this advantage, experts argue that such a move would encourage smartphone companies to shift more production from China to India. This competitive edge in tariffs could hugely boost India’s smartphone exports.