Electronics Supply Chain Under the Trump Administration

If tariffs force higher prices for electronic finished goods, manufacturers will not absorb the costs. The concern by some insiders suggests that manufacturers will pass on higher costs to consumers. American consumers will pay the tariffs.

“Today regulations cost this country more than I care to say,” said IPC President and CEO John Mitchell. “It cost millions of dollars to understand them, never mind implement them.”The U.S. remains the second least motivating country worldwide when it comes to corporate tax structure, Mitchell said, citing an unnamed government official. “We’re actually motivating people to leave the country, rather than keep them here,” he said. “CEOs of multinational companies don’t want to explain to shareholders why the corporation needs to take a 20% tax hit to manufacturer in the U.S., he said.

STEM skills

Let’s say U.S. regulators provide incentives and restructure tariffs and tax codes. Companies still need to find employees with high-tech manufacturing skills. It no longer takes thousands of workers to run a plant. It takes tens of workers, which may not result in the number of jobs added many would hope to see.

Even today there are jobs companies cannot fill because the U.S. lacks the workforce with the capabilities to do these advanced manufacturing processes. Highly skilled workers initially may come from overseas. “It’s not about warm bodies. It’s about knowledge workers,” Mitchell said.

Electronics companies moved manufacturing to China, India, and Mexico in late 1990s, early 2000s, for a variety of reasons. The U.S. lost five million manufacturing jobs since 2000, per one report, though more than 12.3 million Americans remain employed in the industry. Skip ahead 17 years to find manufacturing transition from mostly manual processes to automation.

Elan Industries, which manufactures custom electronic controls, sources 60% of its components from China and manufacturers 40% in Illinois. Todd Thomas, co-founder at Elan, said rising prices and longer lead times already forced the company to bring back some of that business and manufacturing to Illinois. Rather than add more employees the company automated production to cut costs, which required fewer workers.

Thomas said the Chinese government has tried to build a middle class with policies such as limited overtime and increased wages, which continues to make it more expensive to manufacture in China.

It really depends on the size of the factory. Gigafactory, the brain child of Tesla CEO Elon Musk, will staff 6,500 and cost $5 billion to build. The Nevada-based factory that will churn out lithium-ion batteries when complete in 2018.

Trip Chowdhry, managing director at Global Equities Research, wrote in a research note that he believes Tesla will build its third high-tech Gigafactory in Texas, rather than France.

Gigafactory runs on some of the most innovative technologies, and analysts and industry insiders believe new factories will require employees to have high-tech skillsets like science, technology, engineering and math (STEM).

by Laurie Sullivan, Senior Writer & Analyst, MediaPost


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