The New Reality of Tariffs: Navigating Uncertainty in Electronics Procurement 

The golden age of globalization, built on “trust but verify,” has been replaced by a landscape of nationalism and distrust. The electronics industry, once defined by stable supply chains and cost efficiency, now faces a period of high tariffs, unpredictable policy changes, and increasing pressure to localize manufacturing. 

For years, globalization allowed companies to optimize costs through outsourcing, delivering affordable products to consumers worldwide. That stability started to erode in 2018 with capacitor shortages driven by the automotive sector’s push into autonomous vehicles and 5G. This was followed by the COVID-19 pandemic, semiconductor shortages, and a broader shift toward supply chain repatriation. Now, as we enter 2025, businesses must navigate new tariffs, without clear guidance on their magnitude, duration, or intent, while making critical decisions to maintain competitiveness. 

Understanding Tariffs in Electronics Procurement 

Tariffs are a tax on imported goods, and under most Incoterms (9 out of 10), the buyer, the importer, is responsible for paying them. This creates several scenarios for companies purchasing electronic components: 

• Direct Purchase from a Foreign Manufacturer: The manufacturer’s price remains unchanged, but your company pays the tariff directly to the government. You may choose to absorb this as overhead or reflect it in your standard component costs. 

• Purchasing Through a U.S. Distributor: The distributor pays the tariff and includes it in the component’s selling price, often with a markup. Your price increases accordingly. 

• Buying from a Domestic EMS or ODM: Their transfer price to you will include the cost of the tariff, though their costed bills of materials may or may not explicitly show it. Since EMS companies resell components, the expectation is that they will pass the cost along. 

• Sourcing from a Foreign EMS: You pay the tariff directly to the U.S. government upon import. 

While this breakdown provides a simplified view, the reality is more complex. Tariffs not only impact direct component costs but also ripple through the supply chain, affecting logistics, raw materials, and even domestically sourced products. Tariffs on petroleum, for example, raise transportation costs and increase prices for plastic-based components manufactured in the U.S. 

Strategic Considerations: Short-Term vs. Long-Term Tariffs 

If Tariffs Are Short-Term 

Many of the potential new tariffs appear to be political leverage rather than long-term economic policy. If the expectation is that they will be lifted within months rather than years, consider strategies that minimize immediate disruption: 

• Negotiate Cost-Sharing: Instead of absorbing the full impact, split the tariff burden with your foreign suppliers or EMS partners. A 25% tariff, for example, could be shared at 12.5% each. While EMS companies may resist absorbing costs in their low-margin model, an OEM can negotiate with the foreign supplier through their EMS for relief to avoid supply chain disruption. 

• Delay Major Supply Chain Changes: Avoid costly shifts in sourcing if tariffs may be repealed before you see a return on investment. 

If Tariffs Are Long-Term 

If indicators suggest that tariffs will remain in place for years, companies must rethink their supply chain strategy: 

• Optimize Domestic vs. Foreign Production: Manufacturing for export should stay outside the U.S. to maintain global competitiveness. For domestic markets, evaluate suppliers in tariff-free countries. 

• Conduct a Total Cost of Ownership (TCO) Analysis: Consider not just direct component costs but also logistics, tariffs, and value-add expenses. In some cases, even with tariffs, an existing supplier may still offer the best total cost. 

• Re-evaluate EMS Relationships: Many EMS providers will pass 100% of tariff costs to OEMs. If you have dual sourcing in place, shifting business to a non-tariffed EMS partner could provide relief, but expect a 4–6 month transition due to component lead times and qualification processes. 

• Negotiate with EMS Providers: While EMS companies typically operate on thin margins, they should have some incentive to absorb a portion of the impact, especially if you make it clear that inaction could lead to a shift in suppliers. Aim for a mutually beneficial agreement within 45 days of tariff implementation. 

The Challenge of Supply Chain Shifts 

Even when tariffs justify switching suppliers, execution is not straightforward: 

• Manufacturing Consistency: Not all factories are created equal. Even within multinational corporations, quality and efficiency vary significantly by location. 

• Production Learning Curves: New manufacturing sites require time to ramp up. If staff lack experience with your product, quality and output may suffer. 

• Technology Constraints: Some components have no viable alternative suppliers. For example, NVIDIA’s GPUs rely on TSMC wafers and ASML lithography equipment, both difficult to replace. 

• Redesign Costs: Shifting to alternative components may require redesigning products, a process that can be cost-prohibitive. 

Final Thoughts 

Whether tariffs are short-term political tools or long-term shifts in trade policy, businesses must take proactive steps to mitigate their impact. The best approach depends on your position in the supply chain: 

• OEMs must balance cost absorption with supplier negotiations and long-term risk management. 

• EMS providers face margin pressure and will likely push tariff costs onto OEMs, making strategic discussions critical. 

• Distributors will pass tariffs downstream, requiring buyers to reconsider sourcing strategies. 

In a time of uncertainty, the most resilient companies will be those that take calculated actions, whether through cost-sharing, supplier diversification, or strategic negotiations, to protect their supply chain and bottom line.