An opportunity to chew on

One piece of fallout from Donald Trump's tariff chaos seems to be Apple's announcement that it will shift more iPhone production for the US market from China to India.

- NIRVIKAR SINGH

The Covid pandemic had already been a driver for firms to seek diversification of manufacturing sites. Apple began iPhone production in India in 2017, wooed by Indian policies to promote "making in India". Over the years, Apple has shifted from making only older iPhone models in India to the latest versions. The import value of iPhones sold in the US is somewhere in the order of $50 billion. Sales or profit margins in the US domestic market would add another 50% or so to that, but would not be taxed. But tariffs on Chinese products would still almost double the iPhone price and choke off demand, so Apple has to act.

The sales figures are misleading for what the production shift directly brings to the Indian economy. Manufacturing in this case means final assembly, with almost all components, and certainly all the high-value, sophisticated components being imported from other countries. Of course, that is the essence of global production networks. The value of the manufacturing step is only about 2% of the total revenue, or roughly $1 billion. These are ballpark numbers, but are accurate enough to make the point that at least at this level, Apple's move is not going to have a significant impact on the Indian economy. Some economists would argue that India cannot grow into an advanced economy based on this kind of low-value-added manufacturing, and it should focus on areas such as design. After all, Apple is worth $3 trillion because of its design capabilities, not because of its manufacturing prowess.