How Are Buyers Working Around New Chinese Tariffs?

Created: June 25, 2024
Updated: July 6, 2024
How Are Buyers Working Around New Chinese Tariffs?

The trade war between the US and China is triggering significant changes that could impact supply chains, from the electronic powerhouse in the Far East to the emerging Western industries. However, China’s favorable pricing structure may alleviate any concerns about increased import prices and limitations, resulting in mere inconveniences for supply chains rather than major disruptions. 

Not only is the US making bold changes, though, as European countries are also imposing higher tariffs on inbound Chinese goods. This could result in a number of outcomes. Long-term buyers of Chinese goods may look for ways to navigate the tariff hikes, while others focus on localizing onshore manufacturing facilities in an effort to build resilience. 

Workers examining shipping crates
Long-term buyers of Chinese goods seek alternatives to counter tariff hikes

The Story Behind Chinese Import Tariffs

This is part of the current shift in power across the globe, particularly in providing advanced electronic components for consumer goods, but it also has a profound impact on renewable energy adoption and intelligent products like electric vehicles (EVs) and other smart technologies. 

Despite such an influential position across these industries, control over electronics and renewable applications is up for grabs by all nations. Both the US Government and the European Union (EU) expect to impose high tariffs on various products from China to protect their respective economies. This is not only a response to the recent global events—creating a compelling case for more localized production efforts—but is also spurred on by unfair trade practices, according to a White House statement in May 2024.

In general, western countries are seizing more opportunities to claw back control over their industries by imposing tariffs as high as 50% on Chinese goods. In the EU, the focus is on EVs, semiconductors, and medical goods, and countries speak of 25% to 50% tariffs, and China has warned it will counteract this in retaliation. In the US, the current conflict is all about semiconductors, and it is now up to buyers to determine the impact of inflated rates on their procurement efforts. 

A container filled ship
EU targets EVs, semiconductors, medical goods with 25%-50% tariffs

Bolstering the Impact of Tariffs on Electronics

Increasing costs could shake up the electronics sector in several ways. It is worth noting that, despite the increased fees for imports, Chinese supplies are still incredibly valuable and, in most cases, cost-effective for various sectors. 

The development of semiconductors currently costs the US more than China. With a high fab capacity under its belt and a long-standing position in the electronics industry alone, China also has some favorable advanced technologies. In the past decade, China has provided roughly US$150 billion in subsidies to accelerate the development and manufacturing of semiconductors. Meanwhile, the US announced various sums for competitive chip makers, including Intel (US$8.5bn) and Taiwan Semiconductor Manufacturing Company (US$6.6bn)—all part of a potential US$40bn subsidy package for semiconductor manufacturing. 

While powers shift in the industry, semiconductor buyers globally can still decide where they buy. Generally, the key factor is cost. It can be easy for buyers to become preoccupied by import tariffs—particularly in the US—but China could still hold its position as one of the cheapest providers. Despite the new tariffs, China’s manufacturing costs are significantly lower than those of neighboring countries, and the country itself has historically been a powerhouse for producing electronics at significantly lower costs when compared to the rest of the world—therefore, the question comes down to the product (as it should in many cases). 

Impacts on PCB Buyers

  • Higher costs: If not managed properly, companies could see their costs rise significantly. Buyers’ ability to navigate the changing environment and consider a number of different avenues will determine the impact of tariffs on their long-term supply of chips and other parts. 
  • Supply chain disruption: As a result of the trade tensions between US and China, buyers could see costs increase and potential disruption to inventories while they navigate the changing costs in the industry. Full plans for tariffs on both sides are still yet to be finalized, leaving procurement teams in limbo. 

Actions by PCB Buyers

  • Diversify suppliers: The natural response for buyers in a situation like this is to find new suppliers for like or similar components. Difficulties may arise as some of the leading manufacturers of semiconductors are located in the Far East. Companies based in the US should keep a close eye on investments made in Taiwan, but also the risk of China’s anticipated invasion of the country. 
  • Renegotiate prices: The potential impact of high import tariffs is expected to drive localized sourcing, but cost will be the key factor. Buyers may attempt to negotiate prices with their current suppliers in China in order to bolster the impacts of high taxation. Despite the push for national sourcing, China may still hold the cards in terms of price. 
  • Consider long-term cost-efficiency: On the subject of price, the potential costs faced now may not outweigh the long-term benefits. The difference between sourcing chips in China versus Taiwan could be the longevity of technologies. China could be cheaper in the short term, but cost-efficiency comes from the technology itself. 
  • Nearshoring or onshoring production: This is most likely driven by the growth in fabless production. 
  • Leveraging Alternative Trade Routes: While changes are yet to show a major impact to this method, buyers use alternative trade routes to leverage lower tariffs between different countries. There is a downside to this though, especially for companies focused on decarbonizing their supply chains. Moreover, the added cost to import through a third-party country determines the overall feasibility when compared to the planned tariffs. 
semiconductor fab workers
Fabless companies nearshore to reduce risks and meet consumer preferences

What to Expect From New Trade Tariffs and Increases

In light of more tariffs, companies have one major task, first and foremost, which is to make sure they are educated on the current fees required for certain imports. Being clued up on the legislation of both the export and import country provides an objective clarity to businesses and will minimize potential disruption to supply chains.

This is about more than tariffs, though. Despite the various classification lists to consider, products must also be provided with more clarity to customers, ensuring they meet trade guidelines. An example of this is one that is growing increasingly common in the west—forced labor legislation. 

In order to alleviate any further losses in the trade process, transparency is at the top of the agenda for most supply chains. 

We can also expect that, overall, the demand of Chinese products will slow, particularly in the US as the Biden Administration undergoes its plans to reshore the manufacture of industry-critical items: steel and aluminum, semiconductors, EVs, batteries, critical minerals, solar cells, ship-to-shore cranes, and medical products. 

Buyers in the US electronics sector will likely be incentivized to purchase locally manufactured parts and complete consumer products, which is said to be critical for expanding the country’s energy infrastructure and building more resilience within its borders. 

The EU is also acting to fend off cheaper goods from China—namely EVs, by imposing higher tariffs on Chinese goods that could reach as high as 38%. The effort is a result of, yet again, the injection of cheaper overseas vehicles and other parts into its economy. 

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