Front End | Electronic Components Supply Network
Electronic components markets – from free trade to mercantilism
The economist and philosopher Adam Smith first proposed the idea of a ‘free market economy’ back in the 18th century, believing that the price of goods and services should be determined by negotiation between sellers and buyers free of the burden of government intervention. Smith’s ‘laissez-faire’ approach to capitalism was very different from the ‘mercantile’ or ‘regulated market’ that operated in the UK and elsewhere in the developed world where governments would often intervene to control supply and demand by imposing taxes or regulations. In the light of the recent actions of the new US administration, Adam Fletcher, chairman of the Electronic Components Supply Network (ecsn) updates his article published in CIE last year on the impact of tariffs on the electronic components market. It’s not good news!
G
lobal sales revenues for most electronic components last year (2024) were “sluggish” at best and particularly so in Europe. Not so however in the US, where imports from China in Q’4 hit an all-time high across all industries amid concerns about the possible imposition of taxes (tariffs) on goods imported from China. Tech companies in particular sought to increase their inventory in an attempt to offset the potential financial price rises that would inevitably follow the imposition of tariffs.
Fears become reality?
In February ’25 the US administration acting on Executive Orders from the new President imposed an immediate additional 10 per cent tariff on all goods imported from China. In response the Chinese government filed an additional complaint with the World Trade Organisation (WTO) and is already hiking the tariffs it already imposes on US imports. No one knows what the situation will be when the dust finally settles, but based on past experience it’s likely to be equal in $ value to the financial penalties applied by the US. President Trump is walking a tight rope: China is dominant in the extraction and conversion of rare earth metals, which are critical for many electronic, military and energy applications and following this US action, is severely restricting the export licences for these products, which threatens to adversely impact many tech-based industries. Dates are being set for diplomatic discussion and negotiation between the leaders and
12 February 2025
administrations of the US and China but neither country seems to be in any hurry to sit down and talk.
It was a really big surprise when the US unilaterally imposed an immediate punitive tariff of 25 per cent on all goods imported from Canada and Mexico, citing its concerns that both countries were failing to adequately guard their borders from the movement of illegal drugs and migrants into the US. This created a furious diplomatic backlash between the three countries and the immediate imposition of tit-for-tat tariffs on US goods entering Mexico and Canada. Following intense diplomatic efforts (capitulation?) by Canada and Mexico, this situation has been eased somewhat by the scheduling of high-level diplomatic talks. In the meantime, the date the tariff increases were due to be imposed was deferred for a whole four weeks!
UK business will probably be affected now that the US administration has imposed immediate tariffs of 25 per cent on steel and aluminium imports from the UK and EU. The US has also declared its intention to impose wider tariffs on the European Union and possibly on the UK by mid- February ‘25 but the basis for these actions has not been well explained beyond some ‘levelling up’ of economic activity related to the balance of trade. As I write, the UK government is not planning any retaliatory
Components in Electronics
tariffs, whilst the EU authorities say that they are “reviewing the options”. If the US does decide to impose swinging tariffs on European imports - and I fear that it will - it will be a major headache for all industries this side of the Atlantic. It’s a reasonable assumption that any tariff applied by the US is going to be in the range 10-to-25 per cent, that it will be immediately applied, and European governments will impose broadly similar ‘tit-for-tat’ tariffs on US imports whilst they work on a more considered economic response. We’ll have to wait with bated breath to know how the EU government will respond in the longer term, but the UK government is hoping that the US will spare us from this scale of increase because the UK is no longer a member of the EU. We shall see.
UK electronic components market The additional financial impact of a tariff at 25 per cent on imports of electronic components into the UK is substantial and will be an additional burden on the cash flow and inventory holding costs of manufacturers and authorised distributors. As a result, all parties holding inventory, including end-customers will seek to reduce their inventory holding of these imported goods by 25 per cent in financial terms and putting the overall supply network inventory under further pressure for reduction. Just what ecsn members need!
Fortunately, almost all electronic components manufacturers and the distributors they authorise to represent
them in the UK hold Authorised Economic Operator (AEO) status with the UK’s custom and revenue authority (HMRC) and with local taxation authorities across Europe. AEO status enables companies to react immediately to regulatory changes as they occur and accurately record their financial transactions as goods come into and out of each jurisdiction. This “frictionless trade” enables goods to pass through borders and transit directly to their destination with the minimum of delay. This is important: Components manufacturers and their authorised distributors often hold a vast number of stock keeping units (SKUs), all of which need to be individually tracked, identifying which items are “duty paid” and if shipping directly to a customer, ensuring that the additional figure is reflected in the final selling price. If some or all SKUs are transferred ‘inter- company’ to a location outside the UK or are returned to the supplier AEO status facilitates recovery of both the duty and VAT paid.
Double ‘whammy’
Tariffs will inevitably mean that many UK customers (EMS or OEM) for US- manufactured electronic components will be faced with unit price increases that reflect the additional cost of import and as a result, may seek to change the primary suppliers of the components on their equipment’s Bill of Material (BOM) to non-US companies. In addition, a 25 per cent uplift will be added to the final
www.cieonline.co.uk
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60
