Since the White House announced its intention to impose tariffs on Mexican imports earlier this week, consumers have been reading the mainstream press to figure out how this might impact consumers. Supply chain professionals meanwhile have been wrestling with how these shifts might impact the global electronics supply chain.
The President affirmed the intention on both Monday and Wednesday this week. “[President Trump’s] position has not changed, and we are still moving forward with tariffs at this time,” White House press secretary Sarah Huckabee Sanders said in a statement.
For the electronics and associated industries that use electronic components, such as automotive, Mexican manufacturing has been a staple of the supply chain for the past several decades or more. Mexico launched the Maquiladora, Manufacturing and Export Services Industry (IMMEX) in 1964. Although much of the attention started in the clothing industry, it soon spread to other sectors.
Manufacturing operations established in Mexico that import raw materials and equipment for assembly, processing, or manufacturing (called maquiladoras) have long enjoyed tax breaks and other benefits. Especially in the wake of rising wage costs in China, Mexico’s manufacturing sector has become an important part of the strategy of many OEMs.
Meanwhile, China tariff changes have had huge impacts on the industry already. “The US electronics and electronics components industries were some of the first to be impacted by this trade war,” according to a statement from the Electronic Components Industry Association. “The first two tariff lists enacted in July and August 2018 resulted in tariffs on $50 billion in Chinese products. Out of the list of products from China with new tariffs, total electronics components represented $9.4 billion,19 percent of the total value of products with new tariffs. Virtually all electronics components were included in the first two lists with only a relative handful of electronics products added in the next two lists that will result in tariffs on all Chinese imports.”
We sat down with a number of contract manufacturing experts to get the scoop on how the current tensions and potential changes on the horizon in terms of Mexican tariffs might affect global electronics OEMs. In our roundtable, we included
EBN: Following the addition of a 5% tariff on imports to the US from Mexico, how much impact do you see on the electronic manufacturing supply chain?
Keith:As with a number of initial proclamations from President Trump, it is unclear whether the initial tweet actually ends up becoming American trade policy or not. It’s interesting to note here that White House chief-of-staff Mulvaney stated this weekend that the threatened tariffs were not related to trade policy, which potentially opens the world up to a brand new geo-political economic policy tool. Having said that, the threatened 5% tariffs are not likely to stem the tide of manufacturing being brought back from Asia to the shores of North America. But should the tariffs become progressively more punitive with time and with a perceived lack of progress on migration and attempted immigration, then this ‘tweeticy’ from the administration could have significant global repercussions.
As I mentioned a few days ago in my interview with EMSNow, Mexico and Vietnam are clearly the two primary beneficiaries of the US/China trade dispute. But adding an additional 10%, 15%, or even 20% tariff burden to imports from Mexico would clearly swing the balance in favor of Vietnam, as well as benefit other East Asian countries such as Thailand, Malaysia, and to a lesser extent the Philippines.
Mitchell: If the 5% tariffs go into effect, the implications for the North American electronics industry are significant but, for most companies, probably manageable in the short-term. The greater fear is that these tariffs will remain in effect for an extended period and that they will escalate between now and October to 25%. Tariff Increases of this magnitude and/or duration would prove catastrophic for some companies and force many others to radically shift their supply chains in a manner that would undercut U.S. manufacturing strength.