As the U.S.-China trade war heats up, industrial electronics buyers and their suppliers are attempting to work through the web of confusion that’s been spun up since the first round of tariffs were imposed on China in mid-2018.
There appears to be no end in sight to the standoff. Most recently, China’s government released a white paper stating that while it’s willing to work with the U.S. to end an escalating trade war, the trade actions have done serious harm to the U.S. economy by increasing production costs, causing price hikes, damaging growth and people’s livelihoods, and creating barriers to U.S. exports to China, Bloomberg reports.
In the meantime, the world’s electronics supply chains are starting to show some wear and tear from the ongoing trade war between the two countries. A recent New York Times article highlighted some of the strain being felt by electronics manufacturer ControlTek. The Portland-based company is having to take steps to protect itself—“a strategic shift that has been repeated in boardrooms and executive suites around the world in recent weeks,” the New York Times reports.
“ControlTek is rewriting contract language to make it easier to pass the cost of tariffs on to its customers. It is shifting supply chains out of China where possible, and redesigning products to avoid Chinese components where it isn’t,” the publication adds. “And as a tiny player in an enormous global industry, it is discovering that there is only so much it can do.”
Moving Back Onshore
ControlTek isn’t alone. In fact, a wide range of companies are talking openly about the negative impacts of measures that on the surface were designed to protect U.S. companies from unfair trade practices.
The CEO of Seattle-based electronics manufacturer AudioControl told Yahoo! Finance that his company has begun shifting the company’s supply chain away from China. “We’ve started. We have plans in place, we’re working through that with two or three Chinese companies that supply product because we can’t wait to suddenly find out, by the way the tariffs are now 25% or something,” the company’s CEO Alex Camara told the publication.
Camara sources 70% of his components from a U.S. supplier, Yahoo! Finance reports, but when the Trump administration implemented a 10% tariff on $200 billion in Chinese goods last fall, Camara’s costs jumped. “Everything from resistors to the diodes he imported were all taxed, resulting in a $200,000 bill for the small business so far,” the publication reports.
The same article features comments from Sage Chandler of the Consumer Technology Association, who said that Camara represents many member companies that have “simply accepted tariffs as a new way of doing business, taking control of their own supply chains instead of waiting for a political solution. The challenges are especially great for American companies with manufacturing hubs outside of the U.S.,” Yahoo! Finance reports.
“We have heard, on the very conservative side, that it takes at least two years to get a [manufacturing operations] up and running someplace else, but more like closer to five,” Chandler told the outlet. “That’s five years out of financial planning for something they already had. They’re not getting anything new or better.”
A Turning Point?
In “How the U.S.-China Trade War Reached a Turning Point,” Edna Curran highlights how both investors and executives alike feel that the trade war has hurt business confidence and upended supply chains. “Apple, Starbucks, Volkswagen, and FedEx are among companies that cited a slowing Chinese economy in their outlooks,” she writes.
“More than 400 publicly traded Chinese companies warned on their earnings,” Curran continues. “The IMF, cutting its forecast for the world economy for the third time in six months due in part to trade tensions, said in April that global growth would be 3.3 percent in 2019, which would be the weakest since 2009.”
On June 1st, the U.S. began collecting higher, 25% tariffs on many Chinese goods arriving at its seaports “in an intensification of the trade war between the world’s two largest economies and drawing retaliation from Beijing,” Reuters reports. The tariff increase affects a broad range of consumer goods, and intermediate components from China including Internet modems and routers, printed circuit boards, furniture, vacuum cleaners, and lighting products.
“The U.S. business community supports Trump’s efforts to rein in intellectual property theft and open up China's market,” Reuters reports. “But companies generally oppose tariffs, which they say raise costs and hurt demand.” For example, it says that global automakers, which also face separate U.S. tariffs on steel and aluminum, have been hit hard.
“Carmakers such as Volkswagen (VLKAF), General Motors (GM), and BMW (BMWYY) have come to depend on China for a huge chunk of sales,” Reuters notes, “and they've been hurt by tariffs and an economic slowdown in China.”