Trade War 3.0: The Foreseeable Impact on the Electronics Industry

Trade War 3.0: The Foreseeable Impact on the Electronics Industry

Updated: Oct 31, 2018

On September 24th, the U.S. administration imposed 10% tariffs on US $200 billion worth of Chinese imports. Combined with the first 2 rounds of additional tariffs imposed on July 6th and August 23rdrespectively, the U.S has imposed new tariffs on a total of US $250 billion worth of imported goods from China.  To retaliate, The Chinese State Council’s commission on tariffs and customs issued tariffs on US $7.6 billion of imported goods from the U.S. Products impacted by the tariff war range from commodities such as soybeans to consumer products such as LED lights and toys.

For the global electronics industry, the impact from the tariffs between China and the U.S. is starting to grow. As a globalized industry, the spread of supply chains worldwide helped major OCMs, OEMs and EMS companies to divert production plants to take full advantage of regional benefits. When the trade war first began in July, the industry expected this to be “a short-term situation” and for customer behavior to experience “very little” change. However, as the situation escalates with increasing tariff invoices and no signs of relief, a trace of fear concerns regarding “where next” is spreading across the industry.

Among electronic components, passive components including capacitors, resistors, connectors and more are on the tariff lists from both the U.S. and China. Some of the impacted lines are 3M, Molex, TE Connectivity, Amphenol, AVS, TDK and Kemet. For example, when importing diodes into the U.S. with an HS code of 85414060 and manufactured in China, the importer is subjected to a 25% tariff. On the other hand, LED products with an HS code of 85414010 and manufactured in the U.S. will be subjected to a 25% tariff when importing in China. Although it is possible to source these products from their non-China or non-U.S. manufacturing sites based on the import destination, the increase in labor and lead times may create chaos to the supply chain, especially for highly allocated parts. While big companies may manage to absorb the increased costs, small-to-medium sized companies could experience challenges.

Going forward, with the ongoing server trade negotiation between the U.S., the Europe Union, Canada, Mexico and China, the electronics industry may react by:

  • Decrease in investment and electronic manufacturing

  • The uncertainty regarding tariffs and trade regulations may result in hesitation to proceed with new investments and commitments by companies. If the trade war becomes a normalized practice between China and the U.S., companies may be forced to pick a new market segment to survive or they may be forced to set up alternate supply chains and production lines for each market to mitigate the tariff impacts. Companies will need to be careful in both practices as they are expensive and take significant time to execute. The results could be costly if not planned and executed correctly.

  •  EMS and OEM relocating manufacturing sites from mainland China to another APAC region

  • Given the complexity of the electronics supply chain, it is not likely that electronic manufacturing will return to the U.S. in the near future. It is reported that OEM companies have begun to look for alternative manufacturing sites to replace their existing plants in China. Thailand, Vietnam, South Korea and Taiwan appear to be on their short lists; and their respective governments are taking full advantage of the trade war by offering favorable incentives to attract large manufacturing companies.

  • Expand China’s domestic electronic component manufacturers

  • For some reliable and reputable Chinese OCMs, this trade war created opportunities for them to enter the global supply chain. Some of these companies can provide good alternative parts for passive components from American brands.

It is important for technology manufacturers to have a trustworthy supply chain partner to mitigate significant challenges in today’s political and economic environment. With 40+ years of industry experience, insightful market knowledge, and a global network of qualified suppliers, Advanced MP Technology is well-positioned to help OEM and EMS companies succeed. Contact your account manager today to discuss your customized supply chain solutions with Advanced MP Technology.