Electronics OEMs are scrambling to gauge the impact of U.S. tariffs on more than 800 categories of Chinese goods—including electronics. Component manufacturers and their distributors plan to pass costs as high as 25% on to customers.
Distributor Master Electronics is trying something different: Master has dubbed itself a self-described tariff free zone.
The Office of the United States Trade Representative (USTR) in a recent report laid out its motivation for the tariffs. The USTR wants to curb Chinese claim on consumer electronics marketshare and punish the country for stealing U.S. intellectual property (IP). A partial list of impacted products is available here; it includes connectors, integrated circuits, printed circuit boards, assemblies, assembly machinery and more.
In consumer electronics – a characteristically low-margin business—a 10% to 25% tariff is significant. “The tariff thing is pretty challenging,” Kevin Purser, head of global supply chain operations, sourcing and procurement at Fitbit, told EBN. “You have to plan for multiple scenarios, since you don’t know what the cost will be in the end. We got a lot more creative in our efforts when the figure went from 10% to 25%. Now, it’s all-hands-on-deck, looking at how we limit our exposure on relevant products coming out of China.”
Some distributors are responding to tariffs by increasing prices or passing costs on as a surcharge. Instead, Master Electronics, which focuses on sales of electromechanical, interconnect and passive components, has made a bold set of promises to its customers. For the foreseeable future, Master will not:
- Increase prices due to the tariff policy
- Add a surcharge at checkout due to the tariff policy
- Delay any orders placed before the tariff policy (They can be expected to ship per the original approved purchase order).
- Apply tariff charges to new orders
“While complying with the government’s requirements, Master Electronics will also absorb the full tariff policy impact in order to preserve our customers’ current ordering experience with absolutely no disruptions,” said Riad Nizam, president of Master.
Nizam views this move as a natural part of distribution. “Basically, what it comes down to it, we are in the problem-solving business, the service business, and if we can’t figure out how to do things like this, why exist?” Nizam told EBN. “Customers won’t need us. That’s the underlying thinking. We want to provide service and avoid issues and disruptions.”
Although Master is unwilling to speculate on the impact of tariff-free purchases, Nizam said the distributor has been shoring up its inventory since March 2018. “We may not be able to do it as a permanent thing,” he added. “We know that this can have an impact on our financials but in the long term, by increasing customer satisfaction, we believe the good will outweigh the bad for us. We don’t run our business quarter to quarter but look to the long term in everything we do.”
The full impact of tariffs on the U.S. electronics industry remains to be seen. Will they allow Western OEMs to compete with China on price? Will the policy strengthen manufacturing in the U.S.? Until those questions are answered, OEMs will be worrying about increased BOM costs with good cause.