Tariffs Inform Electronics Purchasing... or Should

The tariff landscape is evolving daily under the current U.S. administration, and no one knows where we will be when things calm down. It’s fair to assume, though, that tariffs will exist and that purchasing pros will need to stay informed about how these changing financial realities may need to be addressed. 

The 25% tariffs on Mexico and Canada are now in effect, except for a one-month reprieve for automakers. Meanwhile, an incremental 10% tariff on products from China has already been instituted.

These geographies, particularly China, are deeply engaged with the electronics industry and account for the USA’s top three trading partners. At least 60% of the content that goes into electronics end products moves through China at some point during manufacturing.

Pundits predict that China will remain a significant player in the industry despite the geopolitical landscape and regulatory uncertainty. Procurement decisions that involve moving manufacturing and partnerships to other geographies to avoid higher costs will be time-consuming, so they can’t happen overnight. 

These realities lead to some reasonable conclusions about the electronics manufacturing industry, particularly for US-based customers: 

• Many organizations will be searching for sources of supply and partners that mitigate tariff impacts.
• Tariffs will likely impact additional countries involved in the electronic component manufacturing industry. 
• Inventory from countries that aren’t subject to tariffs will likely be harder to find and procure as competition for those items increases. 
• End customers will inevitably feel the impact of these higher prices. 

In short, the situation is likely to get more complicated as the tariff landscape continues to evolve with other countries under potential scrutiny by the current Administration. The electronics industry has successfully contended with tariffs before–the United States has imposed tariffs on China since 2017.  As tariffs grow, the OEM procurement professional can expect to find the addition of a “tariff recovery fee” charge on some of the products they want. 

Purchasers should proactively ask how their distribution, manufacturing, and other partners are navigating or passing along growing tariff costs.  Identifying alternative sourcing options from non-tariffed countries is a potential remedy. However, certain products are made exclusively in the impacted countries.

Further, tariffs are likely to hit the electronics industry. Moving procurement and production to alternative locations will likely create dead spots in production forecasts. For example, new sourcing locations may not have the same infrastructure to move goods, which could push lead times for certain things from two weeks to eight to ten weeks or more. Being prepared for these potential glitches will be part of a successful strategy. 

The good news for foreign customers is that the complexities of the U.S. tariff landscape will have minimal to no impact on material costs. 

The toll of tariffs is unavoidable for U.S.-based organizations. Most organizations can’t move their manufacturing operations to the United States. In fact, across industries, only about eight percent of organizations in the United States say they have plans to develop onshore manufacturing capabilities, according to “Trump’s Trade Tightrope: A Global Supply Chain Outlook,” a report published by analytics firms AIMMS and Iter Consulting, which collected opinions of 1,000 “supply chain leaders” in five key markets: the U.S., China, Germany, the UK, and Sweden. 

In short, what will be, will be. At times, paying the costs associated with tariffs will be necessary. At the same time, we need to track potential challenges and actively mitigate the impact where we can to remain successful. 

To read the article on EETimes, click here: https://www.eetimes.com/tariffs-inform-electronics-purchasing-or-should/