Front End | Electronic Components Supply Network Global trade chaos
To judge from recent comments made by members of the new White House administration Donald Trump is beginning to realise that he has scored an own goal by throwing out the international trade rule book and implementing a trade tariff policy based more on rhetoric than sound economic principles. Trump’s ill-considered actions have created chaos across global markets and soured his country’s long- term relationships with trading partners. Adam Fletcher, chairman of the Electronic Components Supply Network (ecsn), suggests that a policy of de-coupling from the US wherever possible might be required and believes that it could encourage many UK and European
companies to seek alternative, less contentious markets. In this article for CIE readers, Fletcher argues that from the electronic components market perspective it’s probably better that UK / European governments refrain from imposing arbitrary ‘tit-for-tat’ tariffs on the US and, together with other countries, strive to restore the conventions of international trade that non- government organisations (NGOs) such as the World Trade Organisation (WTO) established over the last four decades or so.
Outsourcing
The rush to move the production of UK designed electronic systems to lower factor cost economies in Asia during the 1980s and 1990s, ‘hollowed out’ our national manufacturing base. This policy was encouraged by the government of the time, who believed that more developed economies such as the UK should be able to operate successfully “higher up the value chain”, whatever the term meant. Marketing professionals rank companies from Tier 1 to Tier 3 according to their actual or forecasted purchasing spend. Offshoring encouraged many large Tier 1 and Tier 2 organisations - often publicly quoted companies - to radically downsize their UK manufacturing operations and replicate them elsewhere in the world. Perversely, local country governments competed to offer UK companies financial incentives to further encourage them to relocate to their country. Not all companies took the bait however: Some research and/or advanced product development players chose to remain. Ironically, these companies were primarily engaged in enabling products ultimately destined to be manufactured offshore and sold on global markets, including here in the UK. UK and EU companies continue to innovate many products that are then manufactured offshore, which represents a value in intellectual property but sadly
12 April 2025
generates a fraction of the sales revenue that would come from manufacturing the end- product or system.
Market structure and shape Dependant on the financial criteria applied by market analysts there are circa 25,000 customer companies purchasing electronic components in the UK today. However, of these customers only a few (<10) are Tier 1s (primarily publicly quoted companies) and around 150 - to - 200 are Tier 2s (OEMs and CEMs). The remaining customers (>24,000) are judged to be Tier 3 organisations. When plotted, the shape of the UK market is essentially a squat triangle with a very wide base. By way of comparison, the German electronic components market is shaped like an oil lamp glass: its base is a modest number of Tier 3 customers, a huge number of Tier 2 customers form the ‘belly’ of the glass, and a modest number of Tier 1 customers comprise the top. The shape is principally defined by Germany’s privately owned ‘Mittelstand’ organisations who, to their credit, simply refuse to embrace offshore manufacturing, preferring to maintain local control over their supply networks.
Trust
As we know from business and personal relationships ‘trust’ is a valuable but volatile
Components in Electronics
commodity which can only be earned over an extended period. Without trust in the electronic components supply network accurate business forecasting would be an impossibility. That said, trust can be rapidly destroyed by the actions of others. The recent actions of US President Trump - with the apparent wider agreement of his administration - have severely eroded the very high levels of trust the country previously enjoyed with its many trading and security partners, and it could take a very long time for it to recover to previous levels. The Trump administration’s continued inconsistency of decision making and its up/down implementation of trade tariffs in reduced or postponed timeframes is just causing further disruption that will hinder the flow of capital and investment decisions and can only result in the further decline of global economic growth. Accordingly, there is likely to be a fundamental reordering of economic and political alliances as nations seek to establish outcomes that maximise the financial and security needs for their citizens. Missteps along the way are almost inevitable, which could potentially trigger further disruptions to global trade. Fortunately, international capital markets are arguably more powerful than governments and will probably force the Trump administration to adopt a more sensible course of action.
Impact on UK / European organisations
The Small & Medium Sized Enterprises (SMEs) that comprise Tier 2 and the many Tier 3 category organisations that dominate the UK and European electronic components supply network do not generally sell their end products or systems into the US, although those engaged in the Broadcast and Medical arenas may have some limited exposure. The nature of their businesses means that Tier 3 companies purchase very few truly US-made electronic components, although those engaged in the Military and Aerospace markets could have little alternative, as the US may be the only source of specific military grade products. Larger UK / EU organisations such as automotive assemblers who ship a significant proportion of their output to the US are likely to be hit hardest by higher export tariffs on finished goods. They face a potential reduction in their exports if US customers reject the price hikes they will have to pay due to increased import taxes. Reduced demand for UK manufactured cars in the US will inevitably flow down through their supply network partners and go on to negatively impact the wider UK economy.
Global electronics
On a global scale the US manufactures relatively few electronic components. Despite
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