The decision to include electronics components and other items involved in electronics manufacturing in the list of products subjected to the new 25% tariff on Chinese imports has left manufacturers looking for ways to explain how these actions will both impact production and how customers can mitigate some of the effects.With global supply chains becoming the norm over the past few decades, final product assemblies include labor and parts that oftentimes span the globe. While VR Industries labor is all performed at our facility in Warwick, RI, components and materials are sourced from several distributors - both domestic and international. As a result, decisions that impact our supply chain will ultimately affect our customers. This is being witnessed across US manufacturers in industries that deal with products impacted by the tariffs.
Here is what anyone who is dealing with a contract manufacturer needs to know if they are planning on engaging with a new project in the coming months:
Two of the most commonplace electronics manufacturing items included in the tariffs are capacitors and resistors. While normal market dynamics would indicate that an added tax on these items would decrease the overall demand, this is likely not the case in this scenario. Passives are necessary parts of the PCB design and assembly, so demand is considered very inelastic. Since few substitutes exist for these items, no alternatives exist other than board redesign.
In general, the new tariffs skew heavily toward non-consumer products. According to an interview in the EE Times with Kevin Krewell, a principal analyst with Tirias Research, this is to blunt the direct impact to consumers. However, increasing costs within the supply chain will likely lead to higher final cost.
“The lack of consumer products indicate the administration doesn’t want to hurt consumers, at least not directly. But tariffs often do lead to higher prices for finished goods.”
IPC, a group that focuses on the printed circuit board and electronics manufacturing service companies, recently released survey results that indicated how its members are reacting to the tariffs.
The overall theme from IPC was that small to medium sized US electronics manufacturers would not be beneficiaries of the tariffs because they are more likely to source Chinese products. This was likely related to the fact that 87% of IPC members currently import some type of material from China. Additionally, less than half of respondents believed the tariff would have more than a minimal impact on their business. This was due to confidence that sourcing solutions could be developed and that new costs would ultimately be passed along to the consumer.
Although IPC is of the opinion that the tariffs will not provide economic benefits to US manufacturers, it does believe that protection of intellectual property is still a top priority. As a result, the group is working with the US Department of Defense to develop standards and a certification program that will help manufacturers safeguard their customers’ intellectual property.
IPC President and CEO John Mitchell says “As we work to address intellectual property issues, we must not further undermine US companies by imposing increased costs on them. Doing so will only weaken their competitiveness in the global economy and jeopardize their long-term sustainability at a time when the US Government should be taking active measures to shore up the industrial base.”
The National Association of Manufacturers (NAM) is another industry group that has responded to the tariffs. In order to create a more fair, equitable, and open market for US manufacturers, NAM has lobbied Congress to pass the Miscellaneous Tariff Bill Act of 2018. This law would seek to lower over 1,700 taxes on imported goods, which equates to over $1.1 billion over the next three years.
What to Expect
Although the electronic components market is experiencing supply shortages, consumers should not expect the rise in cost to increase supply. With the market experiencing uncertainty, the best advice for manufacturing customers is to allow for more extended lead times so that quality components can be sourced for reasonable prices.
VR Industries has worked to maintain great relationships with our components distributors, and is working hard to create multi-sourcing solutions for our customers. Ultimately, most of the manufacturers in our industry are experiencing the same marketplace dynamics, so OEM's will be successful working with us when they understand how lead times and quote pricing will be variable until the market becomes more stable.