How Much of China’s Exports to the United States Can India Replace

India should invest in developing a skilled workforce not subsidize assembly of Apple iPhones says Sunil Mani

(Image: Apple iPhone)

April 26, 2025

By Sunil Mani*

In 2024, the U.S. imported $440 billion in goods from China. Electrical machinery and equipment, including smartphones, computers, and other electronic devices, was the top import, at $127 billion. Machinery, nuclear reactors, and boilers was the second largest import, at $85 billion. Other major U.S. imports from China include toys, games, and sports equipment, and plastics.

Last year, China imported $144 billion of goods from the U.S., including soybeans, electronics, and oil, gas and coal.

In February, President Donald Trump imposed additional tariffs on Chinese imports in an attempt to reduce the $300 billion U.S. trade deficit with China. This led Indian policy makers to see an expanded opportunity for India to replace Chinese manufacturing exports to the U.S.

This week, such expectations were further fueled by reports about Apple’s plans to rapidly expand imports from India. By the end of next year, most of the 60 million iPhones Apple sells in the U.S. will be sourced from India - not China - according to a Bloomberg report. So, in 2027, India could supply more than a quarter of the 230 million iPhones sold around the world. Apple accounts for about three-quarters of India’s roughly $22 billion annual exports of mobile phones; this is up from about $250 million ten years ago.

Apple’s key suppliers in India, Foxconn and Tata Electronics, operate three manufacturing facilities in India, with two more plants under construction

India is the second-largest smartphone exporter in the world, after China. However, in contrast to China, India is an assembler, not a manufacturer of smartphones. This is because India imports nearly three quarters of the components used to manufacture even the low-end smartphones; the imported content is higher for the latest models of smartphones.

In fact, India’s status as an assembler of electronics goods, for both domestic sales and export6s, is evident from import data. In fiscal year ended March 2025, an estimated $90 billion of electronic parts were imported by India. Two fifths of such imports are parts for mobile phones.

(Image: courtesy Creative Commons, Alpha Stock Images.)

China currently accounts for nearly three quarters of the global supply of smartphones; and around half of laptops. More important for its economy, China produces most of the components for the smartphones it assembles.

Apple’s iPhone 16, the latest model, comprises approximately 387 individual components, the majority of which are sourced from suppliers in China, according to The Financial Times. The company’s 2023 supplier list shows that 169 out of 187 key suppliers had manufacturing operations in China and Taiwan. Overall, Apple has more than 1,000 suppliers in China, according to the Wall Street Journal.

The global dominance of Chinese manufacturing, including through use of artificial intelligence, machine learning, and robotics, is due to a combination of developments, planned and pursued by its policy makers.

At its base, China’s research and development spending is $715 Billion, ten times larger than that in India. The research spending gives China an overwhelming lead in intellectual property, including in mobile phone and electronic technologies. This is evident from its dominance in Standard-Essential Patents, particularly in 5G technology. Huawei, ZTE, and other Chinese firms account for a significant share of global patents. India lags far behind with negligible patent ownership.

Since the 1980s, as part of efforts to boost its economy, China has made major investments to develop a world-leading electronics manufacturing system. Today, China makes most parts in the electronics supply chain: from mining and refining rare earth minerals, including neodymium and terbium which contribute to the color and brightness of the screens of iPhones, batteries, camera modules as well as manufacturing nearly two fifths of the global supply of semiconductor chips.

China dominates global production of electronic devices, including smartphones and laptops; major Chinese brands include Xiaomi, Oppo, and Lenovo.

So, it is not surprising, that in 2023, China’s high technology exports totaled $823 billion, more than a quarter of global exports, and more than twenty times larger than comparable Indian exports, according to World Bank data.

Such dominance in the manufacturing of electronics is an indication of the massive size of China’s economy. In 2023, for instance, China accounted for nearly a third of total global manufacturing value added of $4,700 billion, ten times larger than India, according to World Bank data.

In terms of infrastructure, China’s major achievements include more than 100 cargo-handling airports and the world’s largest high-speed rail network.

(Photo: courtesy Wikimedia Commons.)

A highly skilled and efficient workforce is a critical component for high-technology manufacturing. In addition to engineers and industrial designers, technically skilled workers are required to operate sophisticated machinery, ensure high-precision assembly, and adapt quickly to innovations in production processes.

China’s skills advantage is the result of billions of dollars, spent over the past decades, in developing a vocational education and training system, integrated into its mainstream educational structure. In 2022, China had over 10,000 vocational schools, enrolling more than 30 million students, which graduate a range of technicians from junior to senior levels. These institutes offer job-related skills training, tackling real world problems, based on curriculum developed in collaboration with industry and through apprenticeship programs. In addition to engineering and technology jobs, the graduates are employed in industries ranging from nursing and healthcare to food, construction, and finance.

Also, the school administrators work with businesses to upgrade the curriculum, facilities, and faculty skills to meet evolving needs for the skills sought by businesses.

Apparently, Apple is moving iPhone production to India due to Trump’s tariffs on Chinese imports and not due to business economics. Demand for iPhones in China is four-fold higher than in India. in 2024, Apple sold nearly 50 million smartphones; a sixth of the 285 million total smartphone sales in the country. China is Apple’s second largest market after the U.S

By shifting assembly of iPhones to India, Apple risks losing sales in China. Also, Apple’s profits will likely be hurt since the cost of assembling iPhones in India is 5% to 10% higher than in China, according to a Reuters report.

In 2024, sales of Apple phones, mainly iPhones, totaled only around 12 million, about 8% of the 151 million smartphones sold in India. This is because consumer purchasing power in India is very low, given that the median household income is roughly $2,200; it is $80,600 in the U.S.

Also, Apple’s iPhones are the highest-priced smartphones in India, as it is in the U.S. and other parts of the world. For instance, on Walmart.com in the U.S., the iPhone 16, the latest model, sells for $830; the iPhone 13, released in 2021, sells for $249. In India the prices are higher: on Flipkart.com, owned by Walmart, the iPhone 16 sells for $877 while the iPhone 13 sells for $527.

Smartphones by China’s Vivo, Xiaomi, and Oppo, which are 50% or more cheaper than iPhones, account for roughly half the sales in India, according to Counterpoint Research.

Apple and other Western electronic goods vendors will likely continue to expand their sourcing from India, including nurturing and building a chain of local suppliers of components, only if the government of India pursues two critical goals. One, provide abundant skilled labor. Second, invest hundreds of billions of dollars to expand and modernize transportation, energy, logistics, and other infrastructure – in addition to funding the education and training of millions of Indian students.

India has a significant skill deficit compared to China – the labor productivity of a Chinese is estimated to be more than twice that of an Indian. According to the Periodic Labour Force Survey, 2021-22, only around one in twenty of India’s workforce received vocational training, compared to more than a quarter in China.

Despite recent policy efforts such as Skill India, the country has struggled to scale up high-quality vocational education. As of 2024, India had roughly 15,000 Industrial Technical Institutes (ITI), with about 2.6 million students being trained as machinists, electricians, auto-repair and in other skills. But only a fifth of these ITIs, which are government-run, offer any credible training. The rest, which are owned by private entities, are of questionable value.

Even the government-run ITI’s suffer from outdated curricula and equipment, with little input and integration with business needs, lack of skilled faculty and few apprenticeships. As a result, even old economy businesses in the country are often unable to find workers for traditional manufacturing roles.

In addition, India faces constraints which are widely covered in the media including: the grip of large Indian industrial groups on economic policies; efforts by the groups to protect their profitable businesses, which partly cause bureaucratic and regulatory hurdles; power outages; port congestion; and negligible industry-academic collaboration.

If Apple, Foxconn, Samsung, and other Western companies and their suppliers are convinced that India is making progress on expanding its skilled workforce, they ought to invest several hundred billion dollars, as they did in China, to set up a chain of plants, from extracting and refining raw materials, including rare earths, to manufacturing semiconductors.

If local Indian contractors wish to manufacture goods for Apple and other foreign companies they should secure funding from the foreign companies, at their own financial risk, without any subsidies from the Indian government.

The government of India plans to offer up to $5 billion in subsidies and incentives to vendors who supply electronic components, according to Reuters. Apple and its contractors ought not to qualify for any such subsidies. Apple needs India both to avoid U.S. tariffs on Chinese imports slashing its profits as well as to sell more iPhones and laptops in India.

Assuming there is capital investments and transfer of technology, the process of India replacing China as a manufacturing hub = if it happens at all = will take decades. “It took China 40 years to build a complex manufacturing supply chain,” Doug Guthrie, a professor at Arizona State University who previously worked on organizational development for Apple in China, told the Wall Street Journal.

In fact, it may turn out that Apple’s efforts to produce 60 million iPhones in India, for the U.S. market, may not succeed. This is because China could delay or block exports of iPhone components to India, in retaliation for Apple moving production out of China, as reported by India’s MoneyControl.com.

This raises the most important issue for Indian policy makers: should economic policies be focused on producing for exports, as part of a global supply chain, or on developing and expanding the domestic market.

Assuming India can attract businesses and investors to build a chain of component suppliers, should India pursue industrial policies based on exports, while tariffs in the U.S. and other major importing countries change every few years? There is no guarantee that, if a sizeable share of China’s export capacity moves to India, the U.S. government will not impose high tariffs on imports from India.

The key to industrial growth in India is to spend to provide job-related skills for hundreds of millions of Indians and to modernize infrastructure. Such changes will boost manufacturing to serve the domestic market, which ought to be sizeable, given a population of 1.4 billion. Also, creating millions of new jobs will boost domestic demand. Rise in demand from export markets, if funded by the exporting companies, should be viewed as an added boost to job creation and the economy.

The critical importance of having a skilled workforce, which gives China a major edge over the U.S., and more so over India, in manufacturing smartphones and other highly engineered products, was pointed out by none other than Tim Cook, Apple’s Chief Executive. In 2015, Cook told CBSs 60 Minutes, “You can take every tool and die maker in the United States and probably put them in a room that we’re currently sitting in. In China, you would have to have multiple football fields.”

*Sunil Mani is a visiting professor, Centre for Development Studies, and Ahmedabad University, both in India. The views expressed are personal.

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