Electronic devices can breathe easy, for now as US spares chip goods

Electronics products that use semiconductors like mobile devices, laptops, personal computers (PCs) and servers will continue to enjoy tariff exemptions on their entry into the United States, which on Wednesday announced a 25 per cent duty on Indian goods.

 

The tariff will be imposed only on the value of the semiconductor which is in the electronics product, and not on the whole product. But the respite may not last long.

 

The US is conducting a Section 232 investigation launched in April 2025 on whether imports of these products and related technologies pose a threat to its national security.

 

 

A final call on tariffs, or action, will be taken once the investigation report is out, according to top executives of mobile companies which export to the US. The report is expected to be tabled soon.

 

As part of the investigation, the US department of commerce was looking at various aspects like foreign government subsidies, supply chain dependencies and domestic production capacity.

 

Initially, the probe was focussed on semiconductors and semiconductor manufacturing equipment. But the scope of the probe was later extended to include smartphones, laptops which use semiconductor and other electronic products which were exempted from the US reciprocal tariffs.

 

But it offers a temporary reprieve to companies like Apple Inc., which under the existing plan were not paying any duty for exports of mobile devices from India. It has given them a big advantage over China which was slapped a 20 per cent fentanyl tax even though phones were in the exemption list.

 

As a result, Apple has been pushing exports from India to the US, one of its largest markets.

 

However, the future scenario will depend on the decision taken by the US commerce department and the final tariffs which they plan to impose on countries. Senior executives in mobile companies are hopeful that like in his first term as president Trump will continue to keep mobile devices under the exemption list.

 

However, Trump has been pushing Apple to manufacture in the US and has chided its CEO Tim Cook that it should not assemble them in countries like India.

 

The Trump administration, in the interim 90-day period ending August 1, had kept mobile phone exports at zero tariff for India, while China was imposed a 20 per cent fentanyl tax on mobile phones.

 

However, the US and China in the interim had also agreed on sharply reducing their overall tariffs, like in the case of the US from 145 per cent to 30 per cent. However, the two countries agreed on a 90-day period to seal a final agreement, which now can be extended again.

 

Experts say based on scenario one, if the US decides to allow import of iPhones finally at the current rate of 20 per cent, China will have a clear advantage. Especially, as there is a cost disability in making iPhones in India even after the production linked incentive scheme of around 8-10 per cent.

 

In scenario two, if the tariffs across all products are pegged at 30 per cent, including mobile phones, and the fentanyl tax is withdrawn, India’s tariff advantage of 5 per cent will get more than neutralised by a higher cost of production in India.

 

However, if the US continues to impose fentanyl tax over and above the 30 per cent tariff, India will certainly continue to have an advantage over China.

 

The new taxes could also make other countries look attractive, Vietnam with a 20 per cent tariff and a cost of production advantage over India.