Tariffs, tariffs, tariffs. Since the inauguration of Trump, that cursed word has been almost inescapable. Just so happen to produce a key commodity or component? Tariff. Trade just a bit too much with your red, white, and blue neighbour? Tariff. Maybe you happen to own a big chunk of land by the arctic? Tariffs!
Fundamentally tariffs will end up increasing the costs for businesses whilst simultaneously reducing consumer purchasing power – this will especially be the case in the short-term as supply chains adjust.
At the centre of tariff discussions lies China. It is no secret that the manufacturing powerhouse will be facing steep tariffs as the US-China trade war enters a whole new phase under the new US President. Current suggestions are putting China at having to face 60% tariffs on the majority of components and parts exported which will almost certainly pump up production costs on both sides. As for the companies in the middle, short-term supply chain disruptions are expected regardless. Companies will be looking to relocate sourcing from China and diversify supply chains as costs, availability, and lead times increase.
To learn more, I spoke to supply chain specialist Richard Barnett, CMO of Supplyframe, who offered his insights during this time of tariffs, trade, and transition.
A surge in tariff preparation
In response to the tariff-filled times ahead, recent data has shown that 85% of large companies have begun making significant adjustments to their supply chain in preparation for the tariff onslaught – even more than was seen during the COVID period. So, what exactly is driving this reaction?
“On both the supply and demand side of the increasingly complex electronics ecosystem – including semiconductor, passive, and interconnect devices and the end products in which they are employed – supply chain pivots are wreaking havoc as the actual implementation and value of US tariffs are in flux, including the recent threats of EU and eurozone import tariffs,” explains Barnett.
“Reassessing and resetting supply chain partners and regional sourcing approaches in the electronic components space is complicated and costly as China Plus One commodity strategies (previously borne out of supply assurance concerns) continue and, more recently, as No China, No-Taiwan (NCNT), and China Zero initiatives accelerate.”
The main operational driving factors behind these approaches is as expected; upward pricing trends for electronics supply chain procurement alongside assurance and continuity of supply concerns on both the buy and sell side.
The Commodity IQ Price Index across all electronic components remains over twice the 2020 baseline, signalling continued expansion, and the price index for all components in Q4 2024 was up 28% on average compared to Q4 2023. Add onto this the rising prices of raw materials – especially from China – such as cobalt or copper and the situation doesn’t look amazing. Cobalt, essential in batteries and electronics, is dominated by China with a staggering 91% market share of cobalt refining in 2022, maximising problems amidst tariffs.
Meanwhile, key components such as mature-node (produced at ≥ 40nm) semiconductors, including microcontrollers, power ICs, and key sensor devices, and LEDs and PCBs, are under continued supply duress with little relief in sight. In response to the escalating situation, China has banned exporting raw materials such as gallium, germanium, antimony, and superhard materials, which significantly affect the production of semiconductors.
Adapting to a tariff hit China
With purchasers facing a 60% tariff on components sourced from China, businesses will need to adapt to increased production costs. Trump is pushing to suspend China’s Permanent Normal Trade Relations (PNTR) treatment and implement the Restoring Trade Fairness Act. This would mean Chinese goods would face a bare minimum of 35% tariffs across the board, including HTS 85 (electronic machinery and equipment and parts thereof). This would mean that integrated circuits, semiconductors, unpopulated printed circuit boards, printed circuit board assemblies, and all parts associated would be affected.
Below, Supplyframe compiles and compares the ten key tariff-hit countries as a result of the US-China trade war, showing electronic component demand and how the tariffs are changing the trade landscape.
These findings, according to Barnett, suggest: “The China Plus One manufacturing (of electronic components, subsystems, and end equipment) and sourcing strategies that genuinely took hold in 2022 have increased, as have the implications of China Zero initiatives that began in earnest in late 2023.
“For instance, before shifting some iPhone manufacturing to India in mid-2022, Apple assembled over 95% of iPhones in mainland China. By mid-2022, the pivot velocity increased as Apple pressured contract manufacturers to further diversify, with India and Vietnam as key locales.
“It’s certainly worth noting that Mexico remained ranked first as China Plus One manufacturing accelerated, and Vietnam and Malaysia rose seven slots due to key nation shifts.”
Navigating the short-term disruptions of relocation
Whilst relocation isn’t ideal, the current global situation makes it almost essential. However, with relocation comes disruptions, so what can be done to help ease the pain in transition?
One of the key factors that Barnett suggests when navigating these disruptions is to isolate the country- of-origin (COO) across the Bill of Materials (BoM). “Focus on increasing or shifting China Plus One supplier preferences and procurement entirely to the Plus One side.
“Additionally, think about establishing and/or enhancing understanding of upstream factors and raw and intermediate materials by tariff countries – including European Union inputs as US tariff action is likely.
“Beyond this, try to diversify supply bases beyond tariff-impacted nations and those likely to be.
“Finally, aim to leverage component and manufacturing supplier relationships when negotiating to adjust terms for supplier absorption of tariff costs and/or sharing related costs.”
Emerging alternatives
Just because China is facing tariffs doesn’t mean that everything suddenly collapses overnight. The reality is that this has been something that has been predicted for some time now, and preparations made. Many alternative manufacturing nations have cropped up over the past decade or so, many of which can rival with the previous giants.
Barnett put forward some top candidates for alternatives that businesses may want to consider moving ahead:
- Mexico – a strong contender in the automotive, telecom, and consumer electronics manufacturing markets. This is a top pick, assuming US tariffs do not go ahead
- Vietnam – a country that has pushed itself to become a manufacturing hub over the past couple of decades. It has had robust growth in electronics manufacturing which coincides with low labour costs – quite the lucrative destination
- India – despite being at risk of BRIC tariffs, India still ranks high as a China alternative. The nation is developing its electronics manufacturing capabilities via the Make in India programme whilst also emerging as a burgeoning semiconductor and smartphone manufacturing environment, hosting Apple contract manufacturers like Foxconn, Wistron, and Pegatron
- Thailand – referred to as the ‘Detroit of Asia,’ Thailand is a key producer of sensors, engine control units, and other systems with big names like Denso, Bosch, and Continental utilising this ecosystem. The country is also a significant backend IC producer with links to STMicroelectronics, onsemi, and Microchip
- Malaysia – readily established across a multitude of different manufacturing industries, the island sprawled nation is a top choice for those looking to get away from China. Malaysia has countless big industry names involved across the board, from Texas Instruments and backend semiconductor production, Murata and capacitor manufacturing, Seagate for SSDs and HDDs, through to Flex and various PCBAs and other end products
- Poland – the EU’s biggest rising star, Poland has a skilled workforce across the electronics, engineering and interconnect assembly industries. Add onto this low labour rates, special economic zones (SEZs), and a strategic location within Europe next to Germany, and its significance as a hub for electronics supply chain sourcing cannot be denied
What might an extended trade war mean?
Whilst nobody hopes for it, an extended trade war is most certainly on the table at this juncture. If this is to be the case, then the industrial and automotive sectors a likely to be hit the hardest owing to their vulnerabilities in needing supply of legacy and mature-bode semiconductor devices.
As Barnett puts forward: “Process nodes of 40 nanometres and above are utilised to manufacture some of the most common components widely used in auto applications, including microcontrollers (up to 100 per vehicle), sensors (up to 120 per vehicle), and analog ICs.
“Some 90% of automotive-grade semiconductors (e.g., that can withstand high temperatures and have higher reliability standards) are manufactured with 40-nanometer and larger process nodes.”
These sorts of vulnerable components would be the ones most under duress amidst an extended trade war and likely what we could see in the coming years. Beyond this, it’s hard to say, but the continued trend of increased costs and decreased consumer purchasing power could be expected. After all, rising prices for electronic components and electronics manufacturing (EMS provider) will impact everything from white goods (appliances) to automobiles. For instance, the Consumer Technology Association estimates laptop prices could rise by up to 45%.
Conclusion: the road ahead
The impact of escalating tariffs on global supply chains cannot be overstated. The shifting trade policies, particularly between the US and China, are forcing businesses to rethink their sourcing strategies, with significant disruptions expected in the short term. As companies work to mitigate these impacts by relocating production and diversifying supply chains, challenges related to cost, availability, and lead times will continue to persist.
The rise of China Plus One and China Zero strategies has accelerated, pushing businesses towards alternative manufacturing hubs such as Mexico, Vietnam, India, Thailand, Malaysia, and Poland. While these nations offer viable alternatives, transitioning to new supply bases is not without difficulties. Companies must carefully assess country-of- origin data, adjust procurement strategies, and negotiate terms to absorb or share the costs associated with tariffs.
Looking forward, an extended trade war could further exacerbate these issues, particularly for industries heavily reliant on mature-node semiconductors, such as the automotive and industrial sectors. The increased costs of electronic components and manufacturing will likely translate into higher consumer prices, impacting industries across the board – from appliances to automobiles.
Ultimately, navigating this evolving trade landscape will require resilience, strategic planning, and a proactive approach to supply chain adaptation. Businesses that successfully manage these transitions will be better positioned to withstand ongoing trade uncertainties while maintaining their competitive edge in an increasingly protectionist global economy.
By Harry Fowle, Associate Editor, Electronic Specifier
This article originally appeared in the March/April issue of Procurement Pro.
