Tariffs on Electronic Components Impact US Product Costs

The 25% tariffs on electronic components and hundreds of other Chinese imports announced by the Office of the United States Trade Representative on July 6, 2018 “have global consequences for business and consumers alike,” notes the Electronic Components Industry Association, “adding friction and costs to the supply chain that can hinder economic growth.” Nonetheless, there is a wait-and-see period, since some of the consequences over the long-term might be positive for U.S. manufacturers, including the “localization of the supply chain,” according to Tom Derry, CEO of the Institute for Supply Management.

The intention, in any case, is to make U.S. companies less reliant on Chinese goods. Although few experts believe the new tariffs will escalate into a full-blown trade war, they will lead to many long-term negotiations. The partial list of products affected, valued at $34 billion, includes manufacturing machinery, industrial molds, fuses, LEDs, printed circuit boards, AC and DC electric motors, batteries, resistors, circuit breakers, and other electrical and electronic components. Additional products were added to the list in August 2018.

As Reuters reports, “most of the targeted products are classified as either ‘capital goods’ or ‘intermediate items.’” Some U.S. businesses have already begun sourcing parts and machinery from countries such as Vietnam, Thailand, and Taiwan, but not all supply chains will be able to avoid the tariffs on electronic components. Electronics manufacturers will need innovative solutions to keep costs low, remain competitive, and reduce the effects on their customers. Companies may need to adjust procurement strategies and factor added costs into their buying.

Despite the wide range of Chinese imports subject to new duties, it’s important to keep in mind that “a 25% tariff on electronic components won’t mean a direct 25% increase in the final cost of your product,” writes electronics manufacturer Matric. “Some estimates put the price hike in the 3% range for a typical low-to-mid-volume production, but that could increase if tariffs begin affecting active components like integrated circuits.”

Another manufacturer, Macrofab, provides a detailed breakdown of the increases in Cost of Goods Sold (COGS) for electronics products. This information can help electronics makers better understand how the headlines affect their business. An expert analysis for particular production needs will further demystify what the new tariffs mean for the supply chain. NPI Services, Inc. (NPI) provides such analysis, with Rough Order of Magnitude (ROM) estimates that account for the prices of the best-sourced components as well as client history and relationship.

NPI offers mass production quotations based on client forecasts and understands the strategies needed to reduce costs. NPI’s connection to the electronic component marketplace is an advantage for clients bringing new products to market or creating prototypes. We work with engineering teams and manufacturing managers to ensure that bills of materials (BOMs) are aligned with cost reduction, supplying component cost and product availability data, as well as other metrics that can help our clients make informed decisions.

Although some costs will inevitably go up due to the tariffs on electronic components, NPI’s component kitting service can significantly mitigate the impact by simplifying procurement and inventory monitoring. Contact NPI Services today to see how our experts can mitigate the effects of the new tariffs on your manufacturing needs.