The Big Picture: Globalization—Tariffs and Alternate Sources

The new year is upon us, so I started thinking about the main challenges our company and customers are facing as we enter 2020: tariffs, and finding alternate sources for PCBs.

The cloud of tariffs continues to loom over importing PCBs into the U.S. from China. Although there seems to be détente between the U.S. and China with a Phase One trade agreement, a lot needs to be ironed out before we see any changes to tariffs on PCBs. The fact remains that China isn’t paying these tariffs, but the U.S. is. It’s a tax on the U.S. manufacturer, and will eventually be one on the U.S. consumer.

Even though there has been some movement to source from outside of China, the bulk of the volume production capacity remains in China. Moving entire supply chains from North America to China took at least a decade; the movement started in around 1993 and was firmly in place and expanding rapidly by 2003. And I suspect moving them back to North America isn’t the answer. Our cost of production will remain higher than other lower-cost regions, and people will find other sources—such as Vietnam, India, Thailand, South Korea, etc.—before entire supply chains move away from Asia. Additionally, with uncertainty in the leadership and politics in the U.S., no one is willing to make large-scale investments—especially with recent events suggesting that tariffs will be rolled back by the current administration and a potentially new administration in 2021.

Adding to the tariff challenge is the massive 5G roll-out underway in China spearheaded by the likes of Huawei. Not only are higher-end Chinese PCB shops full of 5G work, but the amount of high-speed materials being sucked up by this technology is creating critical material shortages for everyone else. It’s not unusual to see lead times of several months for certain PCBs, depending on region and material type. On the component side, things aren’t much better. Some simple components have a year or longer lead time, and many are doing “just-in-case” buying rather than “just-in-time” planning. That’s what happens when supply chains get disrupted abruptly.

We have found good and reliable sources outside of China to help spread the risk for our customers. Some customers have mandates to move a certain portion, and, in some cases, move entirely out of China. Navigating the challenges of finding and qualifying new sources can be a big challenge. Vast industry experience and connections established over the decades are essential to helping customers find alternate sources.

Most PCB purchasing departments have their hands full simply managing existing supply partners. Further, looking for partners in the aforementioned places (i.e., Vietnam, etc.) can be a daunting challenge. We lay the groundwork to establish qualified alternates and pave the path for our customers to engage in other regions of the world.

There is a larger divide that can potentially lead to far broader implications between the U.S. and China. We’re starting to see a separation between U.S.-led technology and China-led technology. In a speech about a year ago, Hank Paulson (former treasury secretary) said, “For 40 years, the U.S.-China relationship has been characterized by the integration of four things: goods, capital, technology, and people.” He continued, “And over these 40 years, economic integration between the two countries was supposed to mitigate security competition. But an intellectually honest appraisal must now admit both that this hasn’t happened and that the reverse is taking place.”

The U.S. is no longer willing to accept China’s unfair trade restrictions, and China is stealing IP from U.S. companies. We tolerated this for years before China became a technology powerhouse. Unlike toys, T-shirts, and tennis shoes, China’s technology now has both economic and military implications.

Paulson further argued, “After 40 years of integration, a surprising number of political and thought leaders on both sides advocate policies that could forcibly de-integrate the two countries across all four of these baskets.” He stated, “We need to consider the possibility that the integration of a global innovation ecosystem will collapse as a result of mutual efforts by the United States and China to exclude one another.” In conclusion, Paulson asserted, “This is why I now see the prospect of an Economic Iron Curtain—one that throws up new walls on each side and unmakes the global economy as we have known it.”

My hope is that the wave that seems to favor nations looking “inward” and becoming “anti-global” will run out of steam. We have seen countries, such as China and India, coming out of poverty through globalization. Yes, everyone has to play fair, but to continue the economic and socio-economic expansion, at the end of the day, we must allow free markets to flourish. I still believe that the most open systems of government win. Time and again in human history, free-market economies and open systems have prevailed, and that will continue.

Mehul J. Davé is CEO and chairman of Entelechy Global Inc. and chairman of Linkage Technologies Inc.

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2020

The Big Picture: Globalization—Tariffs and Alternate Sources

01-09-2020

The new year is upon us, so Mehul Davé started thinking about the main challenges his company and customers are facing as we enter 2020: tariffs and finding alternate sources for PCBs. Mehul shares his thoughts.

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2019

The Big Picture: Globalization—What Happened?

07-16-2019

Cheap products and services from places like China and India are good, but giving up the position of being the top dog doesn't sit well with most people—especially when you have leaders around the world reminiscing about the past and wanting to make XYZ great again or something similar.

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Can Do in CAM Outsourcing: CAM Engineering— Building Redundancy in Critical Areas

01-22-2019

Many believe that outsourcing is wrong because it takes away from local jobs. That may be the case if this industry can find the talent level at a cost that they can afford, but this is not the case in North America or Europe.

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2018

The Big Picture: Globalization—What Happened?

07-16-2019

Cheap products and services from places like China and India are good, but giving up the position of being the top dog doesn't sit well with most people—especially when you have leaders around the world reminiscing about the past and wanting to make XYZ great again or something similar.

View Story

Can Do in CAM Outsourcing: CAM Engineering— Building Redundancy in Critical Areas

01-22-2019

Many believe that outsourcing is wrong because it takes away from local jobs. That may be the case if this industry can find the talent level at a cost that they can afford, but this is not the case in North America or Europe.

View Story
Back

2017

CAM Engineering—Fast Turn-Around

09-11-2017

Time-to-market has been the mantra for every successful technology company. The best among them have strong and integrated supply chains that march to the drum of the OEMs and EMS providers that bring that technology to market. A big part of that success, especially in North America and Europe, is the ability for PCB manufacturers to turn around complex PCBs very quickly. The hallmark of PCB production in these higher-tech, higher-cost regions is flexibility and responsiveness.

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2016

CAM Engineering – Automation

12-19-2016

As volume production in PCB has shifted significantly to Asia, manufacturers in Europe and North America have been focusing on high technology, quick-turn, prototype, and lower-volume production.

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A Case for Outsourcing CAM Engineering

04-29-2016

In the West, outsourcing is sometimes considered taboo and many believe it is one of the causes for shifting our manufacturing base to the East—specifically China and other lower cost Asian countries. In this series of columns, I will make a case in support of CAM outsourcing—especially for North American and Western European printed circuit board manufacturers.

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2015

CAM Engineering – Automation

12-19-2016

As volume production in PCB has shifted significantly to Asia, manufacturers in Europe and North America have been focusing on high technology, quick-turn, prototype, and lower-volume production.

View Story

A Case for Outsourcing CAM Engineering

04-29-2016

In the West, outsourcing is sometimes considered taboo and many believe it is one of the causes for shifting our manufacturing base to the East—specifically China and other lower cost Asian countries. In this series of columns, I will make a case in support of CAM outsourcing—especially for North American and Western European printed circuit board manufacturers.

View Story
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