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How the Tariff Wars Could Impact Electronics Buyers

Here’s how the most recent round of tariffs could make life more difficult for electronics manufacturers, procurement, and consumers alike.

There’s a lot of news swirling around the import tariffs being imposed by the Trump administration—and the associated retaliatory tariffs—right now. And while the final chips have yet to fall, these moves are clearly going to have at least some impact on companies that are trading with overseas business partners.

At press time, the administration had imposed $34 billion in tariffs on Chinese imports, with most of those tariffs impacting the import of electronics components. In response, China announced its own round of $34 billion in tariffs on U.S. products, according to CBS.

Here’s how these and other tariff developments could impact the electronics industry and the buyers who work in it:

 U.S. consumers may pay more for common electronics. Buyers in the U.S. will soon see price hikes on computers, phones, thermostats, and similar “everyday items,” such as those that use LED lighting, according to the Information Technology Industry Council, a group that represents technology companies. “That’s because the hundreds of Chinese components that the Trump administration aims to penalize are used to make everything from LEDs to sensors to printer and scanner components,” Rachel Layne writes in China trade war with U.S.: These will be the first casualties from more tariffs. “When manufacturers pay more for their parts, the costs are typically passed on to consumers.”

American companies may find themselves at a competitive disadvantage. Because many of the components in question are used to make finished goods that can also be exported once assembled in the U.S., some economists say it’s an ineffective penalty on China that ignores how global supply chains work. As Layne reports, “The Peterson Institute for International Economics said in May that the tariffs put American companies at a disadvantage, rather than address concerns about China’s handling and alleged theft of U.S. technology.”

U.S. gadget makers could feel a big pinch. The White House detailed the first $35 billion in restricted goods, including new restrictions on batteries, capacitors, and touchscreens, with an additional $15 billion still to be approved. An additional $200 billion in tariffs are in the works, according to The Verge. “That looming trade war has particularly severe consequences for gadget startups. Often borne out of crowdfunding campaigns, these companies have typically played American demand against Chinese manufacturing know-how, focusing on emerging products like smartwatches, VR controllers, and the Internet of Things,” Russell Brandom points out in Gadget makers are bracing for Trump’s trade war. “The incoming tariffs make that approach both riskier and less profitable, potentially requiring an entire industry to rethink where it makes its goods.”

Procurement could see different levels of price and supply constraints. For some goods, like aircraft engines or satellites, China is not a significant supplier and the tariffs mostly serve to prevent a broader manufacturing base from growing, Brandom writes. “For other components, like the proposed tariffs on semiconductors,” he notes, “the tariffs could be avoided by assembling finished goods in China or elsewhere in southeast Asia.”

The new tariffs could also complicate supply for components that are already heavily in demand. “Everything from Tesla cars to the IoT devices we use every day, to our cell phone—all of these are eating up capacitors enormously,” Dragon Innovation’s Shawn Chang told The Verge. “It’s really hard to buy capacitors right now, and it doesn’t help to have 25% tariffs on top of that.”

All Hands on Deck
Procurement professionals looking to offset some or all of these negative impacts are already seeking out alternate sources in countries where the new U.S. import tariffs don’t apply. And as supplier schedules change, logistics may become a more significant factor, and inventory levels may have to be adjusted. “Uncertainty in the supply chain usually translates into buildup of parts inventory to offset the risk of shortages,” Rosemary Coates advises in SCMR’s In a Global Trade War, How Should Supply Chain Professionals Defend Their Companies?

Urging supply chain professionals should take “immediate action,” Coates tells buyers to secure new suppliers and to do strategic planning using multiple “what-if” supply and cost scenarios. “Your focus should be on developing alternative and flexible supply chains that can be adjusted with speed,” she writes. “It’s time for all hands-on deck to fight for your company’s survival.”

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