China Tariffs & US Relations May Continue to Impact Electronic Industry

Spotlight:

• Katherine Tai picked as top U.S. trade official
• What does this spell for electronic parts sourced from China?
• How will companies mitigate increasing costs caused by the tariffs?
• Will the new Biden administration consider stripping the China tariffs?

President-elect Biden announced Katherine Tai as his top U.S. trade official. Here's why her appointment will impact the electronic industry:

Who is Katherine Tai?

Katherine Tai, a longtime China critic, has been selected by Biden as a top U.S. trade official. If Tai's selection is confirmed, she will lead U.S. trade negotiations with China and other countries.

Tai is a graduate of Yale University and Harvard Law. She practiced law in D.C. with a focus on international trade affairs.

From 1996 to 1998, Tai worked in China as a Yale-China fellow. She is fluent in Mandarin. Though Tai has connections with China from her work as a fellow, she has said that she plans to take a forceful and strategic approach to trade with China.

Tai's history with China sheds some insight into her future interactions with the country. From 2007 to 2014, Tai successfully led disputes against Beijing at the World Trade Organization (WTO) in Geneva, Switzerland. Her work with the WTO may be a differentiating factor for the new administration, as Robert Lighthizer—the current top trade official—has often circumvented the WTO when negotiating trade policies with China.

Tai's selection aligns with Biden's previous statements that he will not immediately remove the tariffs President Trump imposed on China.

The current China tariffs require a 10 to 25% tax rate on nearly $300 billion in Chinese imports. The majority of imports impacted by the 25% tariff are electronic components.

Impact of continued tariffs on electronic industry

Continued tariffs on Chinese imports make it unlikely for affected electronic parts—like semiconductors, resistors, diodes, integrated circuits, and more—to see a drop in pricing.

Companies in the U.S. who import their electronic components from China will continue to source their parts at a higher price and pass that higher price onto the OEM (Original Equipment Manufacturer) or will find themselves motivated to search for alternative manufacturing sites in countries unaffected by tariffs.

As China tariffs continue under the new administration, supply chain managers need to maintain resilient strategies backed by prudent data analysis that asks the question: "how many of our parts are sourced through China?"

Important factors for supply chain managers to continue to consider: where parts are made; the manufacturing share a country controls for a part; the stability of alternative suppliers, and the costs of alternative supply chains.

Tariffs under review

The current plan for the new administration is to continue to review the deal Trump's administration made with Beijing. While there is a chance the new administration eventually strips the tariffs, the recent selection of China-critic Katherine Tai points to a likelier scenario: a newly negotiated deal on China tariffs, but not necessarily one that is any less tough. For now, U.S. companies will continue to plan around the imposed tariffs and monitor Tai's future trade plans.