Many contract electronics manufacturers don’t know where to build factories after new US tariffs

While the US government’s desire to inflict economic damage on China was obvious even before the introduction of higher tariffs, other countries where electronics production is concentrated clearly did not expect such a significant increase in tariffs. Now Asian electronics manufacturers do not understand where, apart from the US, they should start producing products for the American market.

Image Source: HPE

Let us recall that many countries with large foreign trade deficits with the US yesterday faced an increase in customs duties to almost 50%. At the same time, in some of them, contract manufacturers of electronics have been developing infrastructure for years aimed at reducing the dependence of Western suppliers on China.

As representatives of the Nikkei Asian Review admitted in an interview

One of the contractors of Apple, Nvidia and Samsung Electronics, the scale and size of the tariffs announced by Trump yesterday came as a shock to them. At first, they even tried to joke about moving production to space or Antarctica to protect their interests. However, a deeper analysis of the situation showed that even the vicinity of Antarctica is not a safe territory in terms of the impact of American tariffs.

Losses cannot be avoided entirely, admits another supplier of electronics to Google, HP and Dell. However, it also has no idea in which geographical direction to move. Now the governments of countries where the companies have enterprises will have to conduct difficult negotiations with the US authorities in order to at least partially minimize the impact of customs duties on business.

The contradiction is that companies have been forced to move production capacity from China to neighboring countries since 2018 precisely because of the Trump administration’s policies during his first term. Now they have to realize that these efforts may have been in vain.

From April 9, higher import duties will be introduced on goods from Vietnam (46%), Thailand (36%), Taiwan (32%) and India (26%), while Chinese products will face an increase in duties from the current 20% to 54% from tomorrow.

Image Source: HPE

Apple has been aggressively expanding its manufacturing operations in Vietnam in recent years, with the help of its contractors. Dell makes up to a quarter of its U.S. laptops in Vietnam and is expanding production in Thailand. HP has also chosen Thailand as a destination for its manufacturing operations from China. Nvidia relies heavily on contractors in Taiwan, Malaysia, and Mexico.

One supplier to HP, Google and Dell, who wished to remain anonymous, admitted that unless tariffs on Vietnamese imports to the US are reduced, no major manufacturer will invest more in the Asian country. “We are in an era where politics prevails over economics,” the industry representative concluded.

Many market participants expected an increase in import duties in the United States, so in recent months they tried to import more components into the country at old rates. However, not all importers were ready for this: in some segments, the dynamics of demand did not allow for an increase in warehouse stocks.

Some manufacturers, faced with the “equalization” of equally high tariffs, may choose to manufacture in China, since moving production outside of China usually involves additional costs. Suppliers will inevitably have to cover some of these costs from their own profits, which will only worsen their situation against the backdrop of already declining demand. PC maker Acer said back in February that it would be forced to raise prices on its products in the U.S. by about 10%.