The highly publicized dispute between two long-time trading partners could have some significant repercussions, especially for the electronic components industry.
Among the many foreign policy controversies sparked by the Trump administration, the ongoing U.S.-China trade war is concerning for both domestic and international tech businesses alike, and with good reason.
Before he was president, one of Donald Trump’s most touted campaign promises was to renegotiate the trade relationship between China and the United States. He argued vehemently that the current deal was not only poorly conceived and unfair, but that it was also destroying the U.S. economy and costing hard-working Americans their jobs.
This claim, though brazen, stemmed from a very evident disparity observed in the trade relationship between the two countries: American imports of goods manufactured in China far exceeded U.S. exports to China. Trump further polarized this issue by tweeting that the “trade deficit of $500 billion a year, with intellectual property theft of another $300 billion” was something “we cannot let continue.”
In January, Trump imposed a 30% tax on solar panels. In March, the administration increased tariffs on steel and aluminum; Xi Jinping, the Chinese president, responded by increasing tariffs on U.S. agricultural imports and hurting domestic farmers.
After months of back and forth negotiations, Trump again imposed a 25% tariff on Chinese goods worth about $34 billion in June. Earlier this month, in another major blow, Trump announced increased tariffs on $200 billion worth of Chinese goods.
Now for the bad news: a significant number of products these tariffs target are from the electronics and technology industry.
What does this mean for the electronics components industry?
The U.S.-China trade war hits the consumer electronics and technology industry especially hard. Companies like Apple, whose products are mainly manufactured and assembled in China, are especially affected by these high tariffs.
While huge companies can undoubtedly opt to swallow some of the costs (letting their profit margins take a hit) a 25% increase in tariffs will more than likely result in increased end-user costs somewhere down the line. Conversely, the “winners” from the ban appear to be smaller U.S.-based businesses that are not exposed to an international supply chain.
So outside of companies specializing in consumer electronics, what does this mean for specific component manufacturers within the industry?
Semiconductors are common components found in a wide variety of electronic devices such as TVs, phones, computers, and cars. The day-to-day functioning of ATMs and modern medical devices are heavily dependent on the use of efficient semiconductors.
The U.S. is a major manufacturer of semiconductors and (guess what?) its primary market is China. The tariffs imposed by the Trump administration, which include semiconductors, are likely to affect these manufacturing companies.
Other tech companies that use semiconductors in their supply chain are also vulnerable to tariffs. The stocks of companies like Qualcomm and Intel have already begun falling, despite the taxes not going into effect until the end of August.
The impact of tariffs on the capacitor market is equally concerning. Complex electronics such as vehicles, GPS, and mobile phones require a large number of capacitors in their construction.
The automobile industry, particularly EV propagators Tesla and Nissan, are likely to experience a substantial rise in production costs due to the high number of capacitors needed for electric vehicles as opposed to traditional ones. In fact, Tesla has already begun hiking up its prices in its Chinese market to the order of $20,000 to $30,000 per vehicle.
Multi-layered ceramic capacitors (MLCCs), also on Trump’s tariff list, are likely to see an increase in cost as well. Even before the imposed taxes, capacitor manufacturers were already struggling to meet the demand of their customers. This is especially true for MLCCs, where shortages from constrained imports are undermining the companies’ ability to produce. Lead time delays, decreased supply, and high tariffs can quickly add up to soaring prices.
Diode manufacturers also fall victim to challenges similar to those producing MLCCs and other capacitors. With the imposed tariff, companies dependant on these manufacturers are now looking towards other countries for more affordable imports.
U.S. firms that incorporate diodes (such as the ever-popular LEDs) into their products are now considering Malaysia for alternatives, creating an opportunistic shift for a country that has, up until now, always played second fiddle to China.
What does this mean for consumers?
The typical American consumer owns multiple personal electronic devices: TVs, phones, computers, video game consoles, to name a few. Household appliances like refrigerators, washing machines, and microwaves also utilize electronic components that the tariffs will impact.
As of this writing, the tariff has yet to go into effect, leaving some wiggle room for endangered companies to get out of the line of fire. This makes it difficult to predict with certainty how much the price hikes will affect consumers come August, but it’s very likely that some (if not most) of the rising productions costs will ultimately be passed down to end-users.
Trump’s tariffs, while creating some American jobs, are also likely to kill others. A large number of newer, less established companies such as startups may either be forced to move overseas to survive or downscale to mitigate costs.
The U.S.-China trade war doesn’t seem to be over just yet. It’s a complicated game of tit-for-tat among two great world powers, and there remains to be seen what additional complications may arise as negotiations continue.
Have you or your business experienced any significant shifts due to newly announced tariffs on electronic components? What are you doing to prepare for the inevitable impact of the tariffs? Are there any additional component industries that you think will be affected?
Share your thoughts with us in the comments below!