Electronic Manufacturing Services : Still tariff-free, but not yet risk-free by JM Financial Services Ltd
Still tariff-free, but not yet risk-free
While uncertainty looms over the US tariff situation globally, we have attempted to summarise the current scenario and the ramp-up in India’s smartphone exports. We focus on: (1) The current tariff structure, levy on electronics and why it may not hurt India’s interests, (2) A deep-dive into the Section 232 investigation, which considers electronics as products of strategic importance, (3) India’s progress in smartphone exports over the years, as it surpasses China to become the largest smartphone exporter to the US, and (4) Potential scenarios and why high chances of a longer exemption cannot be ruled out.
* What is the tariff situation currently? (1) India is currently subject to a cumulative 50% tariff on exports to the US. (2) However, as the Section 232 investigation is underway, electronic goods from all countries remain exempt until further notice, making it a level playing field for all. (3) At the same time, it is pertinent to note that, in Aug’25, the US President announced the possibility of a 100% tariff on imported semiconductors and computer chips, in an effort to incentivise domestic chip production, with companies having a manufacturing presence in the US likely to be exempted from the tariff. With Apple announcing investment commitments, it is likely to be exempted from these duties, which, safeguards the interests of the Indian electronics manufacturing ecosystem.
* What is the Section 232 investigation all about? Section 232 of the Trade Expansion Act of 1962 allows the US President to impose trade restrictions, including tariffs, on imports of items of strategic importance and those that may threaten national security. The idea is to get clarity on (1) the US’ dependence on semiconductor facilities outside the US, (2) the role of foreign governments in driving semiconductor manufacturing in specific nations; and (3) lacunae in the ecosystem and feasibility of manufacturing semiconductors in the US.
* How have India’s smartphone exports scaled up? India’s smartphone exports have scaled up meaningfully since FY23, from USD 11bn to USD 24bn in FY25, and USD 8bn in 1QFY26. Over the years, US dependence on India has seen a huge surge with Apple taking the lead. Our calculations suggest that India’s value share in US mobile imports has moved up from 3% in FY23, to 18% in FY25, and hovered around 60% in 1QFY26, with Apple sourcing most of its US requirements from India. This also made India the largest exporter of smartphones to the US, surpassing China.
* Potential scenarios: We see one of the four situations playing out here: (1) Exempt from tariffs: If the Section 232 investigation concludes that electronics hold strategic value, the sector may remain exempt from tariffs, marking the most favourable scenario for Indian and Asian electronics exports; (2) Variable tariff rates: Levy of different tariff rates for electronics, for different countries; (3) Flat global rate: Levy of a uniform tariff on all electronics imports, regardless of origin, to prevent supply chain disruptions; (4) In line with country specific tariffs: This, in India’s case, means 50%, given current circumstances; if this plays out, it will put India in a disadvantageous position vs. peers.
* Chances of the exemption continuing cannot be ruled out: The US President has constantly pushed Apple to build a manufacturing ecosystem within the US. On the back of this, Apple, along with its 10 partner companies, announced a commitment of USD 600bn to produce components including semiconductors, glass, rare-earth magnets, and advanced wireless charging technology that are used in Apple’s products sold all over the world. This appears to have been much to the US President’s liking, and in line with his agenda to manufacture locally in the US. However, to the benefit of India and other Asian peers, this keeps assembly activities concentrated outside the US. This is visible from the fact that the recent official notification from the US, which puts into effect the additional 25% tariff from 27th Aug’25 on India, has continued with the exemption on electronics.
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