On February 13, 2025, Indian Prime Minister Narendra Modi and United States President Donald Trump met at the White House. Prime Minister Modi was on an official working visit to the United States. A seven-page-long joint statement followed. It covered a range of issue areas for cooperation: defense, trade and investment, energy security, technology and innovation, multilateral cooperation, and people-to-people cooperation. Importantly, the “leaders announced the launch of the U.S.-India TRUST (Transforming the Relationship Utilizing Strategic Technology) initiative.”
The leaders also committed, as part of the TRUST initiative, to build trusted and resilient supply chains, including for semiconductors and critical minerals. While the joint statement is lean in terms of its objectives for joint cooperation on semiconductor supply chains, that is understandably so, as India and the United States have already managed to make steady progress in this area over the years.
However, semiconductors were also an area of focus at Carnegie India’s 9th Global Technology Summit, co-hosted with the Indian Ministry of External Affairs. Some key areas and threads that emerged during the discussions convened were as follows:
A Bilateral Trade Agreement Will Guide Future Cooperation
In the past few years, significant investments have been made in India’s semiconductor ecosystem, jumpstarting the supply chain in the country. At the same time, the view here increasingly appears to be that while the U.S. CHIPS Act (along with the Indian semiconductor incentive scheme) did provide massive financial wherewithal for these firms to invest overseas in countries like India, it was not concurrently accompanied by a resolution of longstanding trade issues. Since approximately 70–75 percent of U.S. semiconductor firms get their demand from overseas markets, addressing trade barriers/market access issues in such markets would be critical to further cooperation in the semiconductor industry. Accordingly, American semiconductor firms would be keen to be able to sell to overseas markets such as India, for which, building facilities in India itself may be a better option, if the trade issues between both countries are resolved. Therefore, “friend-shoring” would likely remain a pillar of building resilient supply chains in semiconductors.
Although some commentators have suggested that friend-shoring may have been relegated to the philosophy of a bygone era, the Trump administration appears not to have altogether dismissed it. Instead, it merely appears to have put guardrails around it in three forms:
(1) Friend-shoring is okay, as long as it is premised on fair trading arrangements and does not lead to the withering away of the American industrial base;
(2) The purpose of supply chain cooperation is to build “resilient” supply chains that are not contingent on having access to the lowest priced chips, and would accordingly be governed by being placed in “friendly” countries like India, and;
(3) The Trump 2.0 administration is not “transactional” on China, as has been claimed many times. It is keen to decouple from Chinese supply chains, including in semiconductors. This is in contrast to Trump 1.0, where tariffs and export controls were imposed on Chinese entities as a way to reach a trade deal. Now, on the other hand, the key realization is that the American and Chinese systems are fundamentally incompatible, and any “re-shoring” of semiconductor supply chains from China is welcome. Whether it is re-shored to the U.S. or to friendly countries like India is secondary. During the GTS, it was pointed out that India ought to focus on legacy node chips—an area where the Chinese are rapidly gaining market share.
Accordingly, two key recommendations under the TRUST initiative are as follows:
1. The two countries must work to reach a bilateral trade agreement. Each country impacted by the U.S. “Liberation Day Tariffs” has opened up avenues to do so, and the window for India to reach its own deal with the U.S. will be narrow. However, it can be done. Here, Indian negotiators are believed to have arrived at a well-structured trade deal with their American counterparts.
2. Negotiations must address non-tariff barriers as well. Discussions at the GTS suggested that India will also be asked to address the non-tariff barriers (NTBs) that were laid out in the U.S. Trade Representative (USTR) National Trade Estimate (NTE) Report on foreign trade barriers. This report was issued just a day before the “Liberation Day Tariffs” of the Trump White House and provided significant information on the perceived NTBs concerning India. India may do well to at least look at these, which range from import licensing requirements for refurbished capital goods (often a key input into the semiconductor industry), to India’s own customs valuation criteria, alleged to have raised the export prices of American firms, as Indian customs authorities are stated to reject the declared customs value of a product.
Legacy Nodes Should Be an Area of Focus for India
When it comes to building leading-edge fabrication plants, it was pointed out that while India should keep taking “a bite of the apple,” the real focus must be on legacy node chips, which do not require the considerable investment that leading-edge fabrication plants require. Here, the surge in capacity by Chinese firms over the last few years has been a cause for concern, with a report by the Peterson Institute for International Economics estimating a surge in Chinese production of legacy chips.
Also, as an aside, it should be noted that the Trump administration has also simultaneously announced a Section 232 “national security” investigation under the Trade Expansion Act of 1962 to “determine the effects on the national security of imports of semiconductors and semiconductor manufacturing equipment (SME) and their derivative products.” Meaning that the U.S. Department of Commerce will undertake a review of not just the imports of semiconductors, but also the downstream products in the electronics supply chain that these semiconductors are used in, hinting at assessing concentration in semiconductor imports by the United States from certain countries. This could be a beneficial development for India, as the result of the investigation could lead to the imposition of “national security” tariffs on Chinese legacy chip exports, if an over-dependence on them is identified.
ATMP Has Been a Win for India
India did well to position itself as a destination for the build-out of assembly, testing, marking, and packaging (ATMP) plants for semiconductors. Micron broke ground when it built a nearly $3 billion facility in Gujarat, India, attracting other players in the semiconductor ecosystem.
The main takeaway from the discussions was that India needs to build on this promising start. However, our view is that the “Liberation Day Tariffs,” as currently implemented, may pose challenges for India as an ATMP hub by potentially opening the doors for increased competition from countries like Mexico. For instance, the tariffs mean that importing equipment to the United States for building AI infrastructure, such as data centres and servers, will be more expensive now from other countries. And even though standalone chips are exempt, chips are rarely imported as standalone products, often packaged as a part of a larger product. Here, the exemption provided to Mexico under the United States-Mexico-Canada Agreement (USMCA) means that chips assembled in Mexico will likely receive preferential treatment. This further underscores the need to reach an agreement on a U.S.-India bilateral trade agreement (BTA), which is, understandably, receiving priority attention from both sides now.
Conclusion
Discussions at the GTS highlighted how significant government-to-government engagement through the earlier avatars of the TRUST initiative led to the incubation of a semiconductor ecosystem in India, further aided by U.S. firms looking to diversify and strengthen their supply chains. However, these discussions also made clear that with that push now in the past, the onus is now on market dynamics to take over. Meaning, it is crucial to strike the right balance between State action and private incentives, because at the end of the day, if onshoring, re-shoring, or friend-shoring fail to pass market tests, it won’t work. Here, it is unlikely that a BTA will resolve all outstanding trade issues between India and the United States. It might, however, enhance market access for enterprises from both countries. That in itself may be the boost needed to build resilient semiconductor supply chains for the two countries.
