India’s China Plus One momentum faces heat as US, China call tariff truce

The recent 90-day tariff truce between the US and China, which saw significant reductions in reciprocal tariffs, has introduced a new dynamic in global trade. What was once a windfall moment for India, under the China Plus One strategy until earlier this month, is now becoming a test of resilience and long-term planning. While the 90-day easing of tariffs between the US and China has injected short-term calm into global trade dynamics, for India, this move might slow the pace of China Plus One momentum.

For India, the tariff truce comes at an ironic moment. The country is swiftly emerging as a key alternative manufacturing base under the China Plus One strategy—benefiting directly from Washington’s aggressive tariff hikes on Beijing.

Apple, for example, responded to the Trump administration’s 145% tariffs on Chinese imports by ramping up iPhone production in India for the US market. “Apple has been doing a lot of groundwork in India, which has helped it successfully manage some of the US iPhone demand from its India production facilities. In terms of capacity, India has enough to potentially meet all US iPhone demand in the future, but the ecosystem needs to be ramped up. We will see more efforts towards this, as well as products beyond iPhones. We expect made-in-India iPhones to account for 25%-30% of global iPhone shipments in 2025, as compared to 18% in 2024,” says Shivani Parashar, Senior Analyst, Counterpoint Research.

Even during a recent earnings call, Apple CEO Tim Cook noted that, for the June quarter, a majority of iPhones sold in the US will carry “India” as their country of origin. “This includes the top-tier iPhone Pro and iPhone Pro Max, which are predominantly assembled in China, thus doubling India iPhone EMS output to 30 million units exiting 2025,” Danish Faruqui, CEO of Fab Economics, a US-based Greenfield Fab and OSAT consultancy and semiconductor investment advisory.

But these developments might hit another speed bump as during a visit to Doha, Qatar, the US President Donald Trump on May 15, reiterated his concerns about Apple’s plans to manufacture products in India for the American market. Despite Apple’s recent announcement of a $500 billion investment in the US over the next four years, Trump suggested the company should prioritise expanding its manufacturing footprint within the US to align with his administration’s push for economic nationalism, which has underpinned the entire reciprocal tariff strategy.

However, experts still believe such specific short-term developments may only have a temporary impact on India’s capacity creation.

Commenting on the tariff truce, Drew DeLong, who leads the Geopolitical Dynamics Unit at the global strategy and management consulting firm Kearney explains, “Washington and Beijing have called time‑out, but no one should mistake the pause for a formal deal or permanence. 30% incremental US duties on Chinese goods are still three times higher than the current tariff wall facing most of the world and are still subject to Section 301 tariffs, which range an additional 7.5% - 100%. He adds, global firms, scarred by the enduring whiplash, won’t shelve their diversification playbooks by virtue of extreme rates simmering for a single quarter.

Long term risk lingers

The 90-day tariff suspension may offer temporary relief to global supply chains, but it does not change the long-term risks associated with China-dependent manufacturing.

Manish Rawat, Semiconductor Analyst, TechInsights explains, “For India, this suspension doesn’t slow the China Plus One strategy. The short-term suspension might push companies to stick with existing Chinese facilities, particularly in cases where speed-to-market is crucial. But multinational companies, particularly in electronics and semiconductors, have started de-risking due to ongoing US–China tensions, geopolitical instability, and unpredictable Chinese policies like data localisation and export controls on critical minerals. This, in fact, may bolster India’s position as a reliable, long-term manufacturing hub.”

Even in India’s developing semiconductor story, Tesla was said to be actively engaging with upcoming OSAT and ATMP projects from players like Micron, CG Semi, and Tata Electronics. It was said to be part of the strategic move to localise and diversify its semiconductor supply chain.

But as of May 11, 2025, China has rolled back 125% tariffs on US fabricated Chips to 10%, which has a direct impact on tariff insulation strategy in EV segment wherein major players like Tesla are scouting Indian OSAT players for Assembly-Test-Packaging of legacy semiconductor chips as alternate to prior sourcing from China to avoid China’s 125% import tariffs on unfinished semiconductor goods, explains Faruqui of Fab Economics. He adds, now Indian OSAT’s are not competing against 125% import tariffs on US wafer imports into China but only 10% which India needs to further beat by direct or indirect measures to secure the OSAT traction for major giants like Tesla.

But DeLong of Kearney believes Elon Musk is hunting for diversification and depth for his cars that depend on a steady stream of power management and AI chips. “It’s safe to assume he’d rather not stake that future on the next White House executive order or a hiccup in Shanghai. The tariff lull offers Tesla both temporary relief on immediate costs and breathing room to accelerate negotiations on capacity agreements, IP safeguards, and tax perks,” he adds.

Also, per industry standards, it takes at least 5 years post onset of high volume manufacturing in a Fab or OSAT site to win over tier-1 customers like Tesla as they require silicon proven success with reliability before introducing a new supplier into their BOM share. However, ongoing geopolitics, US tariffs on China imports, and, geoeconomics of India in particular have become forcing functions for tier-1 players like Apple and Tesla to source India instead of China as electronics and semiconductor supply power house for their US imports or US production/sales, adds Faruqui.

Rise of Rivals

While India remains a key player in the China Plus One strategy, it faces stiff competition from other emerging manufacturing hubs like Vietnam, Mexico, and Malaysia. Vietnam, in particular, has leveraged its proximity to China, favourable trade agreements, and efficient logistics to attract major electronics and semiconductor investments. Case in point being, while Apple will be souring iPhones from India, it intends to source other products like iPad, Mac, and Watch from Vietnam.

This means, for India, the path to becoming a global manufacturing hub hinges on policy support, ease of doing business, supply chain integration and more.

Global manufacturing hubs are created in geographies and in clusters within geographies where competitiveness for sectors can be sustained to create economies of both scale and scope, says Easwaran Subramanian, Partner, Deloitte India. Highlighting the aspects electronics manufacturing India should focus on, he says. “To take an immediate advantage of changing trade dynamics, create plug and play infrastructure which are closely integrated with the logistics hubs (airports and seaports) – to make the tilt to India by global corporations as they diversify their supply chains to build resilience. These plug and play ecosystems will significantly reduce timelines and processes associated with land acquisition, approvals and time to commercial operations.” In addition, India should plan to house the value chain end to end instead of just one part of the value chain, as it will reduce the cost to serve and create scale.

For instance, for semiconductors, India should focus on building skilled talent, ideally 1 lakh skilled semiconductor engineers and technicians by 2030. It should also look at strengthening and deepening ties with countries like the US, Japan, EU and Taiwan for assured equipment and IP. While the government of India is acting quickly for all clearances once the semiconductor project is approved by the cabinet, having plug and play fab parks with pre-cleared land, cost-competitive energy, water accessibility and sub 30 month build times can be a game changer.

DeLong also believes that while global firms already see India as a genuine opportunity if the conditions are right, yet to turn that interest into capital outlays, India needs to couple fresh reforms with a focused US–India deal that trades tariff relief for real market access. “The recent US–UK mini agreement shows the template of how strategic carve outs can/will be made for strategic sectors. If India pushes hard now—on land, logistics, and legal predictability—it can move from “possible option” to “necessary node” in the new landscape.”

Interestingly, the temporary pause in tariffs has given India a brief window to sharpen its policy framework and execution, especially as the broader US-China trade conflict shows no signs of ending. The Trump administration may also bring tougher export controls and tighter restrictions on outbound tech investments targeting China, and Beijing is expected to respond with non-tariff measures like regulatory hurdles and scrutiny of multinational firms operating in the country. Against this backdrop of persistent volatility, companies aren’t discarding their contingency plans—instead, they’ve circled early August on their calendars and remain on high alert.