In this week’s newsletter, we talk about why Donald Trump is such a fan of tariffs, India’s PC and laptop imports, and more.
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Quote of the day 
“Financial freedom is available to those who learn about it and work for it.” – Robert Kiyosaki
Why Trump likes tariffs
“To me, the most beautiful word in the dictionary is ‘tariff.’ It’s my favorite word.”
You’ve probably come across this quote making the rounds in the news. And it’s not hard to guess who said it, right? But just in case, it was Donald Trump, the soon-to-be President of the United States, in a recent interview with Bloomberg.
And now that he’s won a second term, Trump’s fondness for tariffs — basically, extra taxes on goods countries export to the US, has people nervous, especially in India.
Think about it. If Indian goods face higher taxes in the US, they’ll cost more for Americans. And when prices go up, people tend to buy less, which means demand often falls. So, Americans might choose to buy more US-made products instead, which would hurt India’s exports. This could slow down manufacturing of goods for exports and hit economic growth back home.
So, it’s no wonder that there’s some worry. The recent dips in the Indian stock market are a pretty big hint.1
But have you ever wondered why Trump loves tariffs so much?
Actually, it might seem like Trump is all about tariffs. But he doesn’t really have a choice. He needs to love them because here’s the thing.
During his campaign, Trump promised a lot to the working class. He vowed to keep the tax cuts from the Tax Cuts and Jobs Act (TCJA). This law gave the middle class some temporary tax relief, but most of the perks actually went to big companies and the wealthy. But since these benefits are set to expire by the end of 2025, Trump wants to keep them around.
On top of that, Trump has grand plans for more tax cuts. He wants to give breaks to around 93 million Americans by eliminating income tax on things like tips, overtime pay and Social Security benefits. He’s also pushing for special exemptions for firefighters, police officers, military personnel and veterans. And his biggest promise of all? To eliminate federal income tax completely.2
But such heavy tax cuts could mean less money coming in, leading to a bigger deficit or a situation where the government spends more money than the country earns. So how does Trump plan to close this gap?
You guessed it ― Tariffs!
And that’s exactly why Donald Trump loves tariffs. His idea is simple ― get other countries to “pay back” America for everything it’s done over the years by slapping a 10-20% tariff on anything and everything imported into the US. And if the goods are from China or Mexico, he’s thinking of going as high as 60% or even 100%.3 The plan is to use this money to make up for the lower taxes and keep his promise of making America “great” yet again.
But will it work, you ask?
Well, sadly, it might not. To see why, you could look at a simple Laffer Curve analysis from the Peterson Institute of International Economics (PIIE).4 If you’re wondering what that is, it’s a theory by economist Arthur Laffer that shows how government revenue changes at different tax rates. The goal is to find that “sweet spot” or the tax rate that brings in the most revenue for the government.
So, when PIIE applied the Laffer Curve to Trump’s tariff plan, the findings weren’t so promising.
You see, in 2023, tariffs on imported goods brought in around $160 billion.5 On the other hand, income and corporate taxes (the ones people and businesses pay on their earnings) brought in about $2 trillion. Now, if Trump wanted to replace all these taxes with tariffs, he’d have to pull in a huge amount of money from the much smaller pool of imported goods. To reach $2 trillion, tariffs would need to be set incredibly high.
But there’s a catch. If tariffs get too high, imports drop, making it even harder to hit that target. In fact, the highest revenue they could make with a 50% tariff rate would be around $780 billion. And anything higher than that could backfire. Because when imported goods get too expensive, Americans would buy less, and the negative effects of lower imports would outweigh the extra revenue from higher tariffs.
And it doesn’t stop there. You can probably guess what happens next. If America starts slapping tariffs on other countries, those countries aren’t going to just sit back and relax, right?
Take Europe, for example. If the US imposes tariffs on them, it could deal a blow to the economies of the Eurozone, similar to the hit they took during the energy crisis after Russia’s invasion of Ukraine in 2022. Not exactly a small impact.
And naturally, these countries will hit back with their own tariffs. It’s kind of like what happened with the Smoot-Hawley Tariff Act during the Great Depression.6 The US raised tariffs, other countries responded with their own tariffs, and global trade tanked.
And this time around too, Trump’s tariffs could set off a chain reaction, starting a trade war that makes everything more expensive, not just for Americans, but for consumers worldwide including you and me.
So yeah, if anything, Trump’s “favourite word” might not exactly help him fulfil his election promises. If he somehow proves us wrong, though, we’ll all be pretty happy because who wants higher prices, right?
Until then…
Sources: Hindustan Times [1], CNN [2] [6], CNBC [3], PIIE [4], US Government Fiscal Data [5]
India’s got a hardware import problem – and an opportunity within!
Let’s set aside personal computers (PCs), laptops and the opportunities we mentioned in the title for a moment, and talk about two fictional characters we’ll call Mr. Businessman and Miss Investor.
Mr. Businessman runs an IT hardware manufacturing company in India. Back in 2020, the Indian government announced the Production-Linked Incentive (PLI) scheme for the electronics manufacturing sector (EMS), an industry aimed at making products like smartphones, laptops and PCs. And for Mr. Businessman, this scheme was a game-changer. It offered financial incentives and tax benefits to companies that hit certain sales and investment targets, rewarding them for producing in India instead of relying on imports.
India’s electronics market was booming at the time. Consumer demand for smartphones, laptops and PCs was growing year after year.
Cut to today, India has even become the world’s second-largest 5G smartphone market by volume and the demand for laptops and PCs has surged too.
The only catch? Well, most of this demand was still met by imports, with India getting around 60% of its IT hardware from China.1 But as companies worldwide began looking for alternatives under the “China Plus One” strategy, India had a real shot at becoming the next big manufacturing hub.
All this helped Mr. Businessman’s company grow and rake in steady sales each year.
But running a manufacturing business in India has its hurdles. For one, skilled workers are hard to find, and the investment costs are sky-high. This high barrier means fewer players in the game, which gives those who could make it an edge. But on the flip side, fewer players and big contracts in the EMS industry often mean tight profit margins. Because large contracts rarely allowed generous profit-sharing, which kept Mr. Businessman’s profits fairly slim. Yet, the steady growth in sales kept him optimistic.
What was even more optimistic was the government’s new plan to ramp up local production of IT hardware products. After successfully boosting local smartphone production from 20% to over 95% in the past decade, the government was now extending its focus to laptops and PCs.
In August 2023, the Directorate General of Foreign Trade (DGFT) announced import restrictions on these devices. The idea? To boost local manufacturing and curb cheap imports.
But things didn’t go as smoothly as they did with smartphones. Global giants like Apple, Dell and HP pushed back, arguing that it would disrupt supply chains. Even the US Senate raised concerns. So, the government hit pause and delayed restrictions until December (2024) with a simple online registration system.
But this was a bit too lenient as almost all import authorisations were approved, which meant that it barely reduced imports. In fact, hardware imports of PCs and laptops barely dropped in FY24, slipping just 3% — from $8.7 billion in FY23 to $8.4 billion.1
But now, there’s talk of a stricter import ban from January 2025.2 This time, the Ministry of Electronics and Information Technology (MeitY) is working on a new import authorisation system that would require prior approvals for imports. The government is even considering minimum quality standards for laptops, notebooks and tablets to filter out low-quality devices.
And this time, the goal isn’t just about reducing imports. The government wants big tech players like Apple to invest directly in Indian manufacturing. And for Mr. Businessman, this could be huge. Because more local production means more business for his company, and he might finally have a shot at competing with imports, especially those coming from China.
But hold on, it’s not all smooth sailing yet, because here’s the thing.
First, we have supply chain gaps. India’s hardware ecosystem still depends on imports for critical parts like semiconductors and displays. And without these, local production will always have a foreign dependency.
Building world-class factories isn’t cheap either. For global players to invest heavily, they need policy stability and long-term incentives.
And most importantly, abrupt policy changes can be tough for businesses. If the January ban isn’t gradual and well coordinated and faces the same resistance and luck as what the last authorisation system saw, then it could discourage companies from scaling up manufacturing here.
So yeah, there’s a problem with India’s PC and laptop market.
Much depends on how this all goes come January. And the above measure could be a first step to bring us closer to a time where we see lesser Chinese hardware flooding Indian markets.
Now, let’s not forget and quickly talk about Miss Investor.
While Mr. Businessman was busy building a manufacturing plant, Miss Investor took a different route. She invested in Indian contract manufacturing stocks like Dixon Technologies. And she’s grateful she did so because the stock has been on a tear this year rising over 120%.
As the government announced the PLI scheme aimed at IT hardware manufacturing, it’s been merry for these IT contract manufacturing businesses and their stocks.
And now if the January ban goes through, these companies could land even more contracts. Think about it. Fewer imports mean more business for local players, larger contracts and bigger opportunities. Revenue could jump too, making Miss Investor’s bet on EMS stocks a potentially profitable bet.
Just look at Dixon Technologies, India’s largest homegrown EMS player. Its IT hardware revenues hit around ₹140 crores in FY24, and with the PLI scheme, its aiming to grow this by a massive 34,000% cumulatively over the next six years.3
So yeah, it’s safe to say that the Indian IT hardware manufacturing industry is on the brink of something big.
Sure, there’s a need for better import and manufacturing regulating policies, just as most other countries have done. But there’s also an opportunity lurking amidst this chaos.
If the January ban takes effect, Mr. Businessman and Miss Investor might just find themselves in an enviable position. And maybe, we’ll see “Made in India” laptops and PCs hitting the world’s shelves soon?
Story Sources: The Hindu Businessline [1]; Business Standard [2]; Dixon Technologies [3]
Finshots Recommends 
Quiz of the Day 
: Winner
Quick shoutout to Arham from BITS Pilani for winning last week’s quiz! Well done 
And for the rest of you, stay tuned for more Finshots quizzes in the coming weeks. Cheers!
And that’s all for today folks!
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