The US Executive Order on reciprocal tariffs imposes a 26% duty on Indian exports—electronics, smartphones, telecom gear, and machinery. While challenging for exporters, the move favours India as regional competitors face steeper rates. The order is set to reshape supply chains, redirect investments, and influence trade talks. This piece examines its impact on India’s ICT sector and the strategic decisions ahead.
Global trade has resembled a high-stakes game with shifting rules since the advent of US tariffs—commonly known as the ‘Trump Tariffs.’ Originally introduced under Section 301 of the Trade Act of 1974 to counter unfair trade practices, particularly by China, these measures have since expanded into a tangled web of duties far beyond their initial intent. Today, countries from Vietnam to Myanmar, and even the European Union, must navigate this volatile terrain, facing varying tariff rates based on trade surpluses and economic behaviour.
For the electronics industry—the backbone of modern technology—these changes have not merely raised the cost of doing business; they have reconfigured global supply chains. Companies are being forced to reassess sourcing, production, and market strategies in real time, from semiconductors to smartphones. And it is not just about paying more at customs. As the US sharpens its strategy, deploying reciprocal tariffs based on trade imbalances, import-export dependencies, and even component origin tracing, the industry faces a sobering truth: Adaptability is not optional—it is survival.
Those anticipating the next move will thrive in this new era of global commerce. Those who delay will struggle to catch up.
For businesses, the message is clear:
- Stay informed.
- Understand the legal framework.
- Reengineer your supply chain before you’re forced to.
How tariffs are reshaping the electronics industry
Imagine being an electronics manufacturer. Your latest product is sleek, smart, and built from components sourced globally. But here is the problem: Before it even reaches the shelf, its price is already under pressure. From semiconductors to fully assembled devices, imported parts are caught in an expanding web of tariffs. A single misstep in labelling a component can cost significantly. For instance, a chip assumed to be for a communication device? Customs might categorise it as an automotive part. Suddenly, a 25% tariff is imposed.
The stakes rise further if your supply chain includes China or Hong Kong. An additional 10% duty has already become 20% in many cases, under the International Emergency Economic Powers Act (IEEPA)—officially justified as protecting national security, but leaving importers to absorb the added cost. US export manufacturers are especially affected; the 20% duty paid at entry remains even if a product is re-exported. No rebates. No exemptions. Just an embedded cost reshaping margins and pricing strategies.
Adapt or pay up
In today’s environment, businesses are learning fast; adapting strategies is no longer optional. Avoiding profit erosion is essential. Every component must be classified with surgical precision to ensure both efficiency and compliance. Tariffs can no longer be treated as temporary disruptions; they are a permanent element of cost structures, requiring thoughtful planning and integration into long-term models. The global electronics manufacturing game is not only about innovation but also navigation.
| What smart companies are doing now |
| • Mapping their supply chain. Every part is traced, documented, and its country of origin logged. • Building alternate sourcing. Manufacturers are rethinking dependencies on Chinese components. • Legal pre-checks. Consulting trade law experts before shipments hit US ports, not after. |
E-commerce in the crossfire: Enter the E-port tax
The most disruptive development arrived with the elimination of the de minimis exemption for low-cost Chinese imports. Starting May 2, even a $1 item from China incurs full duties. By June 1, any item under $800 attracts a minimum tariff of $200. These policies, aimed at e-commerce, are forcing small businesses and consumers to reconsider sourcing strategies.
Countries such as Vietnam and Myanmar face heightened tariffs—up to 44%—as part of a US attempt to rebalance trade flows. One rule offers limited relief: Tariffs are reduced if at least 20% of an exported product’s value originates from US-made components. However, if the US content falls below this threshold, full tariffs apply. Proving that share has become a complex legal exercise.
Vietnam and Myanmar have been subject to severe tariffs under a system that may appear arbitrary but is structured to pressure trading partners into adopting what the US defines as ‘fairer’ trade practices. This creates a grey area for companies dealing with multi-sourced products like electronics, as there is no universal rulebook for determining a product’s country of origin.
Often, it is the courts, not customs, that make the final determination. A single misclassified shipment can wipe out an entire profit margin. The US tariff model considers several economic factors: bilateral trade deficits, import volumes from specific countries, and the sensitivity of prices and demand to tariff changes. Once calculated, the tariff rate is typically halved to create a reciprocal discounted rate designed to reduce market disruption. Yet, this often introduces further complexity for businesses attempting to forecast costs.
For countries like India, where trade balances fluctuate, tariff rates shift accordingly, impacting the cost structure of everything from raw materials to finished products.
The complex puzzle of ‘country of origin’
At the heart of these policy shifts lies a simple question: Where is a product truly from? For electronics assembled with parts from multiple countries, the answer is complicated. The US uses the doctrine of ‘substantial transformation’ to determine origin. If a product’s components are merely assembled—not significantly altered—it is not considered manufactured in that country.
In global electronics trade, the label on a product is more than branding—it determines tariffs and legal compliance. For US imports, whether a device is classified as ‘Made in India’ or ‘Made in China’ can drastically alter the duty rate, but this is not based on the label alone.
Customs authorities apply the substantial transformation test: Has the product significantly changed during production, or was it simply assembled from pre-made parts? In electronics, where components often originate from various countries, this distinction is critical. Assembly alone—such as fitting together Chinese-made chips, PCBs, and displays—does not usually qualify as manufacturing, even if the final device ships from India.
Mislabelling or misclassifying origin can trigger heavy tariffs, penalties, and reputational damage. As global trade enforcement tightens, particularly in the tech sector, understanding and documenting genuine manufacturing processes has never been more essential.
Consider the example of an Indian factory assembling laptops using Chinese PCBs and chips. Despite final assembly in India, the US may deem the product as Chinese in origin, subjecting it to a 125% tariff, an additional 20%, and other duties. Misclassification could lead to confiscated shipments, steep penalties, and legal repercussions.
India’s rising role in the electronics supply chain
Global trade is undergoing a dramatic realignment. With each new tariff imposed, the path widens for India to step into a role long dominated by China. Chinese manufacturers have historically led US electronics imports, with smartphones alone accounting for a staggering 81% share of the US market in 2023—a business worth $41.5 billion. In contrast, India claimed a modest 14%, but the tides are shifting. As the US increases tariffs on Chinese smartphones (now facing duties as high as 125%) and imposes significant levies on imports from Vietnam (46%), Thailand (36%), and Indonesia (32%), India’s position in the global supply chain is becoming increasingly strategic.
However, success is not just about producing goods but mastering global supply chain complexity. In electronics, the origin of a product is not always determined by its final assembly location. A single device might contain resistors from Taiwan, microchips from China, and capacitors from Japan, even if assembled in India. When the finished product arrives at US customs, the critical question remains: Where is it truly from?
If customs deems the product to be ‘substantially’ Chinese in origin, any price advantage can be erased by a mountain of tariffs, including the 125% China-origin tariff, 20% general duties, Section 301 penalties, and potential anti-dumping duties.
Strategic planning becomes essential for any manufacturer navigating the maze of global trade. Companies must avoid assuming that simple assembly qualifies as manufacturing, steer clear of superficial modifications, comply strictly with sanctions, and be wary of low pricing that may trigger anti-dumping investigations. The difference between profit and penalty often comes down to smart origin planning, thorough component sourcing documentation, and proactive legal guidance.
For India, this is more than just an export opportunity—it is a chance to cement its status as a global manufacturing powerhouse. As China’s footprint shrinks under mounting trade restrictions, Indian manufacturers face a rare opportunity to scale, innovate, and meet global demand directly. The supply chain is shifting—and the pressing question is: Who is ready to fill the gap?
Navigating the tariff minefield
The tariff decision-making process can be better understood through the pictorial representation, which outlines the critical steps to follow.
| Why the US tariff game is not over |
| • Section 301 tariffs. Still active on $300 billion worth of Chinese goods, including key electronic components. • IEEPA emergency duties. Additional 20% slapped on China/Hong Kong goods—non-refundable for exporters. • De Minimis exemption gone. For China, even low-value imports now attract heavy duties. • Reciprocal tariffs. Duties vary by country, based on US trade deficit formulas. Country of origin scrutiny. Multi-country sourcing can trigger unexpected tariffs. |
Bridging the gap: Government’s critical role
For Indian businesses, growth in the electronics sector requires more than just strategy—it demands robust government support. Policy efforts must focus on trade negotiations, reducing non-tariff barriers, and offering meaningful incentives to improve global competitiveness.
India is rapidly positioning itself as a global electronics manufacturing hub, driven by initiatives such as the PLI scheme, EMC 2.0, and SPEC. However, the sector still relies heavily on Chinese imports for essential components, raw materials, and specialised machinery. This dependence presents risks and opportunities, especially as India-US Bilateral Trade Agreement (BTA) talks progress.
To compete effectively, particularly in the US market, where China exports $21.2 billion worth of electronics and machinery under Chapters 84 and 85, compared to India’s $2.1 billion, India must:
- Negotiate reduced duties on capital goods and electronic inputs, particularly from the US
- Expand export incentives beyond Chapter 85 to include the full range of electronic products
- Address tariff arbitrage, regulatory hurdles, and compliance risks, including misclassification, circumvention, and anti-dumping actions
Indian manufacturers and policymakers must act with urgency. Collaboration with NITI Aayog and trade associations can help lower input costs, expand access to global markets, and reinforce India’s position in global electronics supply chains. The question is no longer one of potential—it is one of execution.
But the reward?
Monumental. Should India rise to the challenge, it could emerge as a viable alternative to China for electronics manufacturing, generating employment, attracting investment, fostering innovation, and gaining geopolitical influence.
| Tariffs to the USA | ||
| Product Category | China Tariff (to US) | India Tariff (to US) |
| Smartphones | 125%+ | ~10% |
| Routing and switching devices | 25%+ | ~6-10% |
Time to think bigger
India stands at a pivotal moment in its journey towards global electronics leadership. Success will require more than increased output—it calls for deep understanding of trade dynamics, strategic policy engagement, and an unrelenting focus on innovation. As US immigration policies tighten, India has a unique opportunity to attract global talent and build cutting-edge capabilities.
Manufacturers that adapt, innovate, and master regulatory complexity will lead the transformation. With China’s dominance under pressure, India is well-placed to step in and claim its share of the global stage. Now is the time for Indian firms to move beyond basic assembly towards full-scale manufacturing, global exports, and sustainable growth.
With coordinated strategy, robust partnerships, and regulatory intelligence, the sky is the limit.
Indian manufacturers must go beyond merely assembling imported parts. With strategic foresight, close government collaboration, and deep compliance expertise, India can evolve into a full-scale electronics powerhouse.
As V. Lakshmikumaran of LKS Law Firm aptly says, “Know your parts, know your origin.” That knowledge is not just about compliance—it is a strategic advantage. The next global electronics giant will not be the one with the cheapest assembly line. It will be the one that understands the rules, plays them wisely, and builds for the future.
Based on an ELCINA White Paper and Webinar titled ‘US Reciprocal Tariffs—Challenges and Opportunities for the Indian Electronics Sector,’ this piece features insights from V. Lakshmikumaran, Founder and Managing Partner, LKS; Devinder Bagia, Partner, LKS; and Disha Jain, Partner, LKS. It has been transcribed and curated by Akanksha Sondhi Gaur, Senior Technology Journalist at EFY.
