EMS Providers Speak Out on Tariffs, Part 1

Editor's note: Following the news of possible tariffs on goods imported from Mexico – and the ongoing trade war with China -- EPSNews' sister publication EBN reached out to a few friends and colleagues from the electronics manufacturing services (EMS) world to find out what they and their customers think of this thorny issue. This is the first of two parts.

Since the White House announced its intention to impose tariffs on Mexican imports, consumers have been reading the mainstream press to figure out the impact. Supply chain professionals, meanwhile, have been wrestling with the impact on the global electronics supply chain.

Philip Stoten

The Trump administration, as of June 10, had backed off its tariffs on Mexico. They remain a tool the government is willing to use.

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 tariffs have changed the supply chain already. “The U.S. 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, ECIA added. “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 several 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:

Ron Keith, director and member of the Board of Directors, Supply Chain Resources Group;
Chris Mitchell, vice president, Global Government Relations at IPC-Association Connecting Electronics Industries;
Albert Yanez, corporate executive vice president & president of AsteelFlash Americas; and
Mathieu Kury, regional director, Business Development & Program Management for AsteelFlash Americas;
Howell Wang, CEO, Insight Solutions Global.

EBN: Following the addition of a 5 percent tariff on imports to the U.S. 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 percent 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 U.S./China trade dispute. But adding an additional 10 percent, 15 percent, or even 20 percent 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 percent 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 percent. 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.

The $155 billion in North American electronics trade has grown and matured in the 25 years since NAFTA was signed. Leveraging the industrial strength of all three countries has allowed companies to maintain and grow their manufacturing operations. These tariffs undermine the partnership that U.S. and Mexico have formed to compete in the global economy.

Kury & Yanez: As we operate under a special maquiladora status, we’re currently working with our import/export expert internally as well as with authorities to evaluate the impact. While tariffs are always particularly hard to navigate, we don’t see an immediate impact as of right now with our daily shipments being made from Mexico to the U.S.

Wang: There’s a slowdown in the decision-making process for most of those companies who planned to move electronics manufacturing and its supply chain from China to Mexico, especially since the Trump government may increase tariffs to 15 percent or more if Mexico fails to resolve illegal immigration. Trump may not be satisfied if Mexico wants to make progress step-by-step. He already did this kind of things on the negotiations with China. Mexico may not step back quickly because lots of immigrants, moving from other countries, are force to stay in Mexico to wait for review and approval for a long time. Mexico would carry a large burden.

About the author: Philip Spagnoli Stoten enjoys sharing his views on what's new or disruptive in the industry he has spent a career of more than thirty years working in. First and foremost, Stoten likes to write, but he is happy moderating a workshop or interviewing an executive on video. Since Stoten was young, he wanted to be a journalist, but an aptitude for science, the technology boom in Cambridge and his weak performance in English at school, led him into manufacturing, where he worked in design, manufacturing, management and sales and marketing. "You can do anything you want", was the inspiring advice given to Stoten by his entrepreneurial father Paul, an approach that led Philip to start his own design company in Cambridge in his twenties. Stoten founded Scoop to help companies in the electronics manufacturing industry plan, produce, deploy and measure content, supporting their brand and their lead generation strategy.