The Implications of U.S.-China Tariff Escalations

On May 14th, the Biden administration made significant changes to Section 301 tariffs related to Chinese imports, building upon measures initiated during the Trump presidency. This $18B adjustment marks the latest development in the ongoing tech conflict intended to bolster domestic manufacturing, leading to significant shifts in the global supply chain.  

Notably, electric vehicles and semiconductors were affected, with electric vehicle component tariffs skyrocketing by 75 percentage points and semiconductor tariffs rising by 25 percentage points.   

Amid mounting pressures between the two nations, the electronic component supply chain is squarely in the crosshairs of retaliatory actions.  

Biden Administration Intensifies Tariffs on Chinese Imports 

The trade conflict between the U.S. and China, particularly in the realm of technology, has significantly evolved over the past few years. The Trump administration introduced tariffs on Chinese imports in 2018 to address perceived unfair trade practices and inadequate protection of intellectual property rights. This led to retaliatory tariffs from China, escalating tensions.   

Biden's administration has not only upheld the existing tariffs from the Trump era, which previously amounted to $300B, but has also doubled the costs for specific products.  

A more extensive list of the tariffs can be found here, but the following are some of the most significant changes impacting the electronic component industry.  These changes will be phased in over the next three years. Additionally, the pre-existing tariff exemption for GPUs has been extended until May 2025.

Part of the inspiration for the EV-related tariffs stems from the fact that China prices its EVs so low that U.S.-based manufacturers cannot compete. The low price tags directly hinder U.S. initiatives like the CHIPs Act, as they effect demand for U.S.-made products.  

The Biden administration asserts that this uptick in tariff pricing aims to protect U.S. workers and companies, effectively allowing them to combat China’s lower pricing.  

Customers Brace for Long Lead Times and Increased Costs 

The U.S. has long expressed concerns over China’s advancements in technology, particularly within the semiconductor industry. While the origin of this back-and-forth in regulations began in 2018, the situation heated up in October 2022 with U.S. restrictions on advanced semiconductor technology, equipment, and related materials to mainland China. This move, perceived as a significant blow to China's technological ambitions, disrupted global supply chains and forced many manufacturers to reevaluate their sourcing strategies.  

The ongoing trade tensions between the U.S. and China show no signs of slowing down. In response, many companies proactively moved production outside of China years ago, but those that haven't are now looking to countries like Vietnam, Thailand, or Mexico, weighing the pros and cons of relocating. 

For companies with longer product lifecycles, redesigning products to use newer chips is challenging. In the meantime, end customers will likely bear the burden of tariffs through increased costs. Outside of completely reorganizing supply chains or product designs, companies are preparing for long lead times and unreliable forecasting. Legacy parts, especially PCBs, which are predominantly manufactured in China, are a major concern. As buyers build buffer stock ahead of tariffs, lead times and pricing are expected to rise. 

Tariffs will have a more direct impact on franchised sources, as the additional costs are likely to be transparent and included in their final prices. In contrast, independent distributors incorporate tariffs into the unit cost, which can benefit buyers. These distributors might absorb more costs or offer competitive pricing to remain attractive. Although buys from independent distributors need to be imported for third-party testing in the U.S., this cost may still be lower than the added tariffs on franchised sources. Independent distributors, accustomed to fluctuating markets, are often more prepared to offer flexible pricing compared to franchised distributors. 

Election Uncertainty to Bring Further Fluctuations 

With the upcoming U.S. election, tariffs are poised to become a key issue. Former President Trump has proposed raising vehicle taxes even further, contrasting with Biden's narrower approach. However, this situation remains fluid, contingent upon who assumes the next presidency and China's response.  

China is already actively phasing out U.S. technology, affecting companies like Dell and Hewlett Packard Enterprises as Chinese demand shifts away from their products. For example, Huawei chips has risen in the ranks of demand and seen its profits skyrocket as a result. Boosted by government support and technological advancements, Huawei has gained prominence among customers purchasing rack servers.  

As these strategic maneuvers unfold, the supply chain will need to undergo adjustments. While government incentives influence demand, product functionality, and pricing, availability will continue to shape buyer behavior in the global electronic component supply chain.  

Stay Out in Front of Changes in the Electronic Component Industry 

Fusion Worldwide keeps you informed on the latest news within the electronic component supply chain. Sign up for our bi-weekly market intelligence report, the Industry Insider, to receive updates directly to your inbox.  

For more information on how we can help you build buffer stock or prepare for tariffs, contact a rep today.