India had reason to be hopeful about its trade negotiations with the United States, even after President Trump imposed a 26 percent tariff on its goods. China faced even higher import taxes, as did smaller Asian exporters like Vietnam and Bangladesh. That put India in a strong position to benefit from companies shifting production out of China. Plus, India’s Prime Minister Narendra Modi shared a cozy relationship with Mr. Trump.
But things have grown tougher for India and its American business partners. Mr. Trump changed his approach with China, backing off some of his highest tariffs. That caught India off guard, as its own tariffs now nearly match China’s. Then, Mr. Trump complicated India’s relationship with Apple, a key example of an American company moving production away from China.
Apple’s Shift to India and Trump’s Reversal
A few years ago, nearly all iPhones were assembled in China. By the end of this year, more than 25 percent will be made in India. But last week, Mr. Trump revealed he doesn’t see this as progress. Instead, he said Apple should skip India and bring production back to the United States.
India is currently trying to secure a reduction in the 26 percent tariff. Mr. Trump paused the tariff until early July to give both countries time to negotiate. Yet his comments about Apple left officials in New Delhi uncertain and complicated the already complex talks.
Indian officials were in Washington this week to push the deal forward. Commerce Minister Piyush Goyal, who had traveled back and forth to Washington since Mr. Trump’s re-election, met with his American counterpart, Howard Lutnick. After the meeting, Mr. Goyal posted on social media that he was “expediting the first tranche of India-U.S. Bilateral Trade Agreement.” The use of “tranche” suggests India expects any agreement to unfold in phases.
Still, uncertainty looms. “The past 10 days have made frustratingly clear in New Delhi,” said an official familiar with the talks, reflecting the shifting dynamics.
Trade Negotiations Entangled With Politics
Before bringing Apple into the mix, Mr. Trump had already blurred the lines between trade and India’s recent conflict with nuclear-armed neighbor Pakistan. Indian diplomats were frustrated when Mr. Trump took credit for brokering a cease-fire and offered to mediate Kashmir.
Mr. Trump said on May 12, “I said, ‘Come on, we’re going to do a lot of trade with you guys. People have never really used trade the way I used it.” However, a senior Indian official denied that trade had been discussed during these talks.
Then, on May 15, Mr. Trump demanded that Apple halt its yearslong efforts to reduce dependence on China by making iPhones in India.
He said, “I told Tim Cook: ‘We’re not interested in you building in India. They can take care of themselves; you up your production’” in the United States, referring to Apple’s chief executive.
A Blow to India’s Manufacturing Ambitions
This demand struck India hard. The country has been a close U.S. partner and an increasingly viable location for companies to reduce reliance on China. Since the COVID-19 pandemic, many global businesses have sought to diversify away from China. India assured American companies that it could fill the gap.
But no country matches China’s extensive, efficient factories, and Apple’s operations there run deep. India has taken pride in Apple shifting some iPhone assembly to its soil. The idea that Apple could bypass India and move production straight to the U.S. surprised many. Apple did not respond to requests for comment.
The Complexity of Apple’s Supply Chain
“Everyone wants manufacturing at home,” said Prachir Singh, an analyst for Counterpoint Research who covers technology companies in India. “But that’s much easier said than done.”
He explained, “If you talk about iPhones, there are more than 1,000 components. It took almost a decade for Apple to set up such a supply chain in China,” Mr. Singh said. “And it took more than five years to reach some capacity here.”
Tamil Nadu: Building China-Style Infrastructure
Several factors have made parts of India competitive with China.
In Tamil Nadu, where Apple’s supply chain in India is centered, the local government has helped companies like Foxconn (Apple’s longtime Taiwanese manufacturer) by building workers’ dormitories and providing other infrastructure modeled after China.
Since 2020, India’s national government has subsidized the manufacturing of high-tech goods to boost local production.
Labor costs remain low across India. Local trade unions in Tamil Nadu estimate that the average monthly salary was about $233. Even engineering jobs pay wages competitive with those in China.
Developing a Growing Industrial Ecosystem
Companies such as Foxconn have also helped local businesses upgrade their role in the value chain by producing more iPhone components in India.
This has created what factory managers call an “ecosystem”: dense clusters of talent and supply that give India a manufacturing edge similar to what China had more than 20 years ago.
Two people in contact with Indian trade negotiators, speaking anonymously due to the sensitivity of the talks, said they do not believe India risks losing Apple’s business.
They also said it was unthinkable that the United States could compete with India’s manufacturing advantages. Instead, they view Mr. Trump’s remarks as a bargaining tactic.
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