The Electronics Industry's Response to Tariff Threats in 2025

Amid growing tensions over global trade, President-Elect Donald Trump has proposed tariffs as high as 60–100% on imported goods, including semiconductors. Here’s the good, the bad, and how the industry is responding.

While the aim is to stimulate increased domestic production and deliver long-term strategic advantage, in the short-term, President-Elect Donald Trump’s threats of tariffs would have very profound economic and operational consequences for businesses and consumers, which the industry must independently and collectively work to mitigate.

As Gary Shapiro, CEO of the Consumer Technology Association (CTA), stated: “President-elect Trump’s proposed sweeping new tariffs of 25% on all imports from Canada and Mexico and 10% on top of existing tariffs on all imports from China, collectively, our top three trading partners, if implemented, will be a major inflation-causing tax on Americans and harmful to the U.S. economy.  

Breaking Down the Impacts of Tariff Proposals

Shapiro warns that higher tariffs imposed on our closest allies and trading partners, such as Canada and Mexico, are “counterproductive and will only lead to harm to U.S. businesses and consumers.”

According to a CTA analysis:

• Over $350 billion in U.S. imports of technology products and inputs from these three countries would be burdened.
• Laptops and tablets could see price increases of up to 46%.
• Video game consoles might rise by 40%, while smartphones could face a 26% hike.

These measures threaten to disconnect the U.S. economy from critical trading partners, invite retaliatory tariffs, and disrupt global supply chains. The research also shows that the 60% flat tariff on all imports from China will largely drive production to other countries, not to the United States.

Besides rising consumer costs, these new tariffs may lead to increased disruptions as companies realign their supply chains, a complex and costly endeavor that may lead to delays and potential production shortages. The bigger-picture concern, however, is that new tariffs may intensify the U.S.-China trade war, and as China ramps up its domestic production capabilities, particularly in semiconductors, competition in the global electronics market is expected to intensify, further straining trade relations.

Economic and Industry Impacts

If implemented, the suggested tariffs are expected to have immediate and extensive consequences, influencing consumer behavior, risking job losses, forcing shifts in corporate strategies, and ultimately altering global market dynamics.

For consumers, higher prices on electronics will put additional strain on already tight household budgets. Looking for alternative options, consumers may opt for refurbished devices as a cost-saving measure or delay upgrades. Longer replacement cycles for smartphones, laptops, and other devices could slow market growth. The market could also see increased demand for modular products as devices designed for easier repairs or upgrades may gain popularity.

When businesses struggle to maintain market share and competitiveness, managing increased costs isn’t always as easy as passing price increases directly onto the customer. Beyond direct price hikes, the proposed tariffs could exacerbate inflation as higher electronics prices ripple through the industries to which electronics and critical components are closely tied, such as healthcare, automotive, and education, driving up costs across sectors.

While tariffs may trigger a long-term shift toward increased domestic manufacturing, immediate job losses in sectors dependent on affordable electronics imports are a significant risk. Small and Medium Enterprises (SMEs) are particularly vulnerable. Unlike large corporations, SMEs may lack the capital to absorb tariff-related costs, carry larger inventories to buffer increases or availability issues and lack the resources to realign supply chains.

Industry Responses to Tariff Challenges

Prompted by the increased cost of imports and policies like the CHIPS Act, which allocates $52 billion to semiconductor manufacturing and R&D, companies such as Intel (investing $32 billion in expanding its chip production facilities in Arizona) and Samsung (expected to invest more than $40 billion to build a cluster of semiconductor factories in the U.S.) are investing in expanding their domestic production. This will help America reduce its reliance on foreign production while mitigating its tariff exposure. 

Other resilience strategies driving global trends as companies work to combat the threat of tariffs and geopolitical uncertainties, include: 

Innovation in Materials and Processes

Companies are also exploring design and supply chain alternatives, such as designing products that require fewer tariff-impacted components or using more locally sourced materials. This has led to increased R&D spending, which could spur innovation in the electronics sector, including exploring alternatives to rare earth elements predominantly mined in China.

Advocacy and Policy Influence

Industry groups, including the CTA, are lobbying policymakers to reconsider the proposed tariffs and are pushing for amendments to the CHIPS Act to address not just processes but broader supply chain gaps, such as DRAM production. To date, industry advocacy efforts have focused on:

• proposing subsidies to offset higher production costs
• promoting the use of bilateral trade agreements to reduce dependency on adversarial nations 
• highlighting the economic risks of tariffs

The tech industry has expressed concerns that the tariffs could raise prices and test supply chains., citing the CTA’s estimate that U.S. consumer purchasing power for consumer technology products would drop by $90 billion annually and The National Retail Federation’s estimates that each U.S.household will pay up to $7,600 in additional costs annually, paying higher prices for things like toys, apparel, household appliances, furniture and footwear.

These efforts highlight the industry's commitment to advocating for policies that support innovation and economic growth.

Diversification of Supply Chains

To mitigate their risks and reduce dependency on Chinese manufacturing, many firms are seeking to diversify their supply base, moving production from China to other Asian countries such as Vietnam and India or nearshoring operations to neighboring Mexico to reduce geopolitical risks and tariff exposure. This requires substantial adjustments but may enhance long-term resilience.

These strategies are not without challenges, but they offer the potential for greater supply chain resilience over the long term.

Emerging Hubs for Manufacturing

Manufacturing, value added (current U.S.$) Source: World Bank Group

Vietnam, India, and Mexico have become prominent alternatives due to a combination of cost advantages, strategic location, and growing manufacturing ecosystems.

Vietnam:

An established manufacturing hub for electronics and textiles, Vietnam's proximity to China allows companies to transition without drastically altering logistics routes, while its competitive labor costs help to attract businesses seeking to offset higher tariffs. However, the country will require investments in transportation networks, port capacity, and power supply to keep up with the infrastructure demands of rapid industrial growth.

India:

Bolstered by government incentives like the "Make in India" initiative and Production-Linked Incentives (PLI) for electronics, India offers a vast workforce and a burgeoning electronics manufacturing sector. Apple and Samsung, for instance, have ramped up production in India, taking advantage of favorable policies. Nonetheless, challenges such as bureaucratic hurdles, variable infrastructure quality, and regional disparities in skill levels require careful navigation.

Mexico:

Nearshoring to Mexico appeals to companies looking to shorten supply chains and reduce geopolitical risks; proximity to the U.S. allows quicker shipping, reducing lead times and improving responsiveness to market changes, while its integration into the USMCA agreement (formerly NAFTA) ensures tariff-free trade for many goods between Mexico, the U.S., and Canada. However, manufacturing in Mexico faces its own set of obstacles, including limited capacity in some regions, growing competition for skilled labor, and infrastructure constraints in areas outside established industrial corridors like Monterrey and Querétaro.

However, nearshoring also poses challenges, such as over-reliance on a limited number of regions. Industrial hubs like Baja California and Nuevo León are nearing capacity, requiring infrastructure expansion and workforce training in less-developed areas to maintain growth.

Key Challenges of Supply Chain Diversification

• Infrastructure and supply chain constraints
• Supply chain ecosystem development
• Regulatory and trade barriers
• Skilled labor availability

China’s dominance is not just about low labor costs. It took China decades to establish the robust infrastructure required to handle its massive production and export volumes (In 2023, China exported approximately 3.38 trillion U.S. dollars worth of goods), including ports, roads and supply chain ecosystems, something alternative manufacturing hubs are constrained by.

For emerging markets, designing their own supportive ecosystems that resemble the extensive network of suppliers and developed advanced manufacturing facilities and logistics hubs China has long since cultivated will require substantial time, strategy and investment.  For instance, Vietnam is working to attract suppliers for critical components like printed circuit boards (PCBs) and semiconductors, and  India’s reliance on imports for specialized electronic components could hinder its progress unless local capacity is ramped up.

Additionally, new manufacturing locations often mean new regulatory environments to deal with, which may increase compliance complexity and risk of non-conformance as companies learn to navigate local laws, labor regulations, and trade compliance, which can vary widely across regions.

Developing nations often also face challenges in meeting the demand for a skilled labor force in advanced electronics manufacturing. Firms investing in these regions may need to provide training programs or collaborate with local governments to bridge skill gaps.

U.S. Tariffs, Global Ramifications

Tariffs are not just a domestic issue; the impacts of U.S. tariffs ripple across the world, straining supply chains, introducing disruptions and impacting global production processes. Countries reliant on Chinese components may face disruptions as the trade landscape shifts.

A threat to U.S. dominance in the global electronics market: as the U.S.-China trade war heats up, China remains focused on its mission for self-reliance in semiconductors, enhancing its domestic semiconductor production capabilities and bringing it closer to its end goal.

Tariffs on Canada and Mexico complicate relations with these key allies, potentially driving a wedge between the U.S. and its closest allies and weakening cooperative efforts on trade and innovation.

While the challenges are significant, the industry has opportunities to innovate and build resilience:

• Leveraging AI organizations can optimize their supply chains, reduce costs and improve efficiencies. 
• Collaborative partnerships between private companies and universities can accelerate R&D efforts and lead to quicker breakthroughs in alternative materials and processes. 
• Tariffs may create tectonic shifts, creating gaps for startups specializing in domestic manufacturing or innovative designs.

Opportunities Amid Challenges

From reshoring manufacturing to diversifying supply chains, businesses must carefully balance immediate risks with long-term resilience. Policymakers and industry leaders must collaborate to mitigate economic impacts while fostering innovation and competitiveness.

As they say, where there’s challenge, there’s opportunity. It is the industry’s ability to adapt swiftly and strategically innovate to fully exploit these opportunities that will ultimately determine its trajectory.