How New Tariffs Could Impact Global Manufacturers in 2025

In November 2024, President-elect Donald Trump pledged to impose hefty tariffs on three primary U.S. trading partners: Canada, Mexico, and China. 

When Trump takes office on January 20, 2025, he promises to impose a 25% tariff on imports from Canada and Mexico unless the countries stop the flow of illegal drugs and undocumented immigrants into the United States, even though the move violates the free-trade deals of the countries. 

Trump is also considering a 60% tariff on all Chinese goods and has threatened a 100% tariff on products from the BRICS nations of Brazil, China, Russia, and South Africa.

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Cause and Effect 

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The proposed tariffs will likely increase the price of electronics, smartphones, and other tech devices. The tariffs will also affect vehicle batteries, renewable energy equipment, and industrial machinery. 

This will increase businesses’ costs and reduce consumers’ purchasing power. Tariffs offer short-term protection for domestic industries and government revenue, but over the long term, they exacerbate trade wars and reduce economic efficiency. 

Trump has also proposed a 10% tariff on imports from China. However, the cost of these tariffs on U.S. companies may be high enough to become economically and politically unsustainable.

This will be even more problematic if Mexico retaliates, as Mexico’s President Claudia Sheinbaum has threatened. While tariffs on China can be justified, a tariff-first approach to address U.S. issues with Canada and Mexico undermines the role of trade and investment across North America anchored by the United States-Mexico-Canada Agreement (USMCA). 

Mexico hosts over 1,000 electronics manufacturing services facilities occupying tens of thousands of square feet of production space. Leading global providers like Foxconn (Hon Hai Technology Group), Flex, and Jabil manufacture advanced electronics for industry sectors, including automotive, medical, and aerospace applications.    

The regional agreement significantly reduces U.S. dependence on Chinese supply chains and secures alternative sources of critical minerals. U.S. companies are mounting campaigns to soften the president-elect’s trade policies, but the Trump team assures them he is serious.

How are companies and countries reacting? A case in point is China, which has banned exporting raw materials such as gallium, germanium, antimony, and superhard materials. This shift will significantly affect the production of semiconductors. According to the U.S. Geological Survey (USGS), China’s export restriction of gallium and germanium to the United States is estimated to negatively impact the U.S. GDP by $3.4 billion. 

How Tariffs Make Electronics Procurement Even More Expensive

If adopted, new tariffs could create expensive challenges when procuring electronic components in 2025. Semiconductor tariffs have increased this year after the Biden administration raised the tariff on semiconductor imports from China to 50% to reinforce its investment in US-based electronic component production through the CHIPS & Sciences Act. 

If the incoming administration continues with the proposed 10% increase, semiconductors from China would see a 60% import tariff. According to the United States International Trade Commission, China and Mexico are the two largest electronics exporters to the United States as of 2023.

China is the largest exporter of electronics to the U.S., with $145.9 billion worth of electronics imported annually, which accounts for 24.7% of all electronics imported into the U.S.

Mexico is the second largest exporter of electronics to the U.S., with $103.4 billion worth of electronics imported. Mexico controls 17.5% of all electronics imported into the U.S. China and Mexico together account for 42.2% of all electronics imported into the U.S. 

Second only to Taiwan in semiconductor exports, South Korea is also feeling tariff impacts, compounding the nation’s political instability of late. According to the Bank of Korea’s Composite Business Sentiment Index (CBSI), the outlook for January 2025 represents the most significant month-on-month decline since April 2020. South Korea accounts for over 50% of DRAM production globally and contends with U.S. export restrictions to China on high-bandwidth memory (HBM).

Tariffs and overall trade upheaval ensure that even accounting for inflation and higher-cost advanced technologies, electronic component pricing alone will not revert to pre-pandemic levels. Year-over-year through November 2024, the Supplyframe Commodity IQ Price Index across semiconductors, passive devices, and interconnect components rose by 18%, nearly 40% higher than the same period in 2019.       

The Pros and Cons of Tariffs

A sizable portion of electronics are imported to the U.S. from Mexico and China, which means prices will rise if the incoming administration follows through on the proposed tariff hike.

The proposed tariffs range from 10% to 20% on imported goods and up to 60% for imports from China. While the tariffs can introduce challenges, they also bring potential benefits to the U.S. economy, especially in the manufacturing sector.

Here are four examples:

• Boost Domestic Manufacturing: With higher import costs, companies could expand manufacturing in the U.S., potentially creating jobs and reducing dependency on overseas production.
• Strengthening Supply Chains: Diversifying or localizing supply chains could reduce the risks associated with global disruptions, such as geopolitical tensions. 
• Encouraging Innovation: Companies avoiding tariffs can innovate new materials, processes, and components domestically, leading to breakthroughs in the electronics sector.
• Enhanced National Security: Manufacturing electronic components domestically, especially those used in sensitive applications, could reduce risks associated with foreign interference. 

There are also potential downsides. Here are three:

• Increased Production Costs: Many components come from China, which charges a 60% tariff, leading to higher manufacturing expenses for U.S. companies, potentially driving up consumer and industrial prices.
• Higher Consumer Prices: Manufacturers may pass on these higher costs, making electronics more expensive. For example, the Consumer Technology Association estimates laptop prices could rise by up to 45% with combined tariffs.
• Short-term Supply Chain Disruptions: Companies seeking to relocate supply chains may face delays and costs, which may impact product availability in the short term.

While tariffs may initially increase costs, they can drive down costs long-term by encouraging local manufacturing and supply chain resilience. However, while the economic repercussions of trade restrictions tend to fade for some commodities like raw metals within a few calendar quarters, the input cost impacts on the complex global electronics supply chain will take considerably more time to normalize. 

In anticipation of trade actions throughout the value chain – advanced buying of the $8 trillion worth of semiconductors, other electronic components, and printed circuit board assemblies imported from China to the U.S. in 2023, not to mention the $92 trillion of computers and wireless communications equipment the United States sourced from the nation per the U.S. Census Bureau.

Trump Doubles Down Ahead of Inauguration 

Tariff threats continued from the President-elect in late December 2024. A post from Trump on Truth Social, a platform owned by his media company, stated that he intends to levy tariffs on the European Union if they fail to address their existing deficit through the large-scale purchase of oil and gas. 

According to the U.S. Energy Information Administration, the United States is already the largest supplier of liquefied natural gas to Europe. Due to the ongoing Ukraine war, Europe has already transitioned away from Russian natural gas and purchased this type of gas from America to make up for the difference. 

Since the Trump Administration has already shown that tariffs are a negotiating tactic with companies believed to be treating the United States unfairly, it’s more than reasonable to assume that such threats will continue into the next presidential term. 

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