Navigating New Semiconductor Tariffs: Impacts on Hardware Engineers

05 Jun, 2024

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semiconductor chip on a PCBA

semiconductor chip on a PCBA

The U.S. government implemented a 50 percent tariff on semiconductors on May 14th. What does this mean for you in real terms?

This article was first published on

www.macrofab.com


On May 14, 2024, the U.S. government implemented a 50 percent tariff (up from the current 25%) on semiconductors imported from China, implemented by the current administration. This move could have significant long-term and immediate implications for U.S. electronics engineers and product designers. What does this mean for you? Let’s dig into it and find out how you can prepare.

Understanding the Semiconductor Tariff Landscape

Before we get into the nitty-gritty, let's set the stage with some context. According to a recent article by the Semiconductor Industry Association, China holds just 17 percent of the global semiconductor revenue. This might be surprising given China's reputation as an electronics manufacturing giant. However, this industry has experienced dramatic growth over the past five years, averaging more than 30 percent compound annual growth rate (CAGR). There is a concern that, without guardrails in place, China will overtake countries like South Korea, Taiwan, and the USA in semiconductor production.

Even though the United States leads the global semiconductor industry in terms of revenue, capturing around 40 percent, it's important to distinguish this from manufacturing volume. Here's a surprising fact: according to data from Statista, while the US designs many semiconductors, only 8% are manufactured here. In contrast, China manufactures a much larger share, at 22% by volume.

With this in mind, we can draw the conclusion that American-based semiconductor manufacturing companies focus on high-end, high-margin semiconductors, whereas China is cornering the market for high-volume, low-cost components. This distinction is crucial as we consider the impacts of the new tariffs.

Immediate Effects of the Tariff

So, what does a 50 percent tariff on Chinese semiconductors mean for you, the hardware engineer? Here's the scoop:

  1. Increased Costs: The most obvious impact will be on the cost of components. If your designs rely heavily on semiconductors with a Country of Origin (COO) of China, you can expect a substantial increase in material costs. This will likely affect your budget and could necessitate a reevaluation of your Bill of Materials (BOM).
  2. Supply Chain Disruptions: With higher tariffs, some suppliers and vendors might reduce on hand stock of imports from China, leading to potential supply chain disruptions. This could result in longer lead times and increased pressure to find alternative sources.
  3. Design Adjustments: To mitigate the cost increase, consider redesigning your products to use components from other COOs. This could be a challenging and time-consuming process but may be necessary to maintain cost efficiency and manageable lead times.

What Does the Data Say?

At this point, you're probably thinking, “Ok, sure but how much will these tariffs increase my PCB Assembly costs?”
To provide a clearer picture of the semiconductor tariff's impact, I analyzed our entire component history to determine the volume and overall percentage of components sourced from China over the history of MacroFab.

Using the components' HTS Tariff code and the Country of Origin, we can sort which components are impacted by this tariff change. As a result, we can calculate what the average bill of materials change will be for historical PCB Assemblies manufactured at MacroFab.

HTS codes listed below may be subject to the semiconductor tariff increase of 25 to 50 percent. Sadly, I couldn't find a list of the affected HTS codes as of May 16th, 2024 and this is an estimate based on the call for “semiconductors”.

  • 8541.10.00 - Diodes, Other than Photosensitive or Light-Emitting Diodes
    8541.21.00 - Transistors with a Dissipation Rate of Less than 1 W
  • 8541.29.00 - Transistors with a Dissipation Rate of 1 W or More
  • 8541.30.00 - Thyristors, Diacs and Triacs, Other Than Photosensitive Devices
  • 8541.41.00 - Photosensitive Semiconductor Devices, Including Photovoltaic Cells Whether or Not Assembled in Modules or Made Up into Panels
  • 8541.42.00 - Light-Emitting Diodes (LED)
    8541.43.00 - Other Photosensitive Semiconductor Devices
  • 8541.49.10 - Other Semiconductor Devices: Solar Cells Assembled into Modules or Made Up into Panels
  • 8541.49.70 - Other Semiconductor Devices: Photovoltaic Cells Assembled into Modules or Panels
  • 8541.60.00 - Mounted Piezoelectric Crystals
  • 8542.31.00 - Processors and Controllers, Whether or Not Combined with Memories, Converters, Logic Circuits, Amplifiers, Clock and Timing Circuits, or Other Circuits
  • 8542.32.00 - Memories
  • 8542.33.00 - Amplifiers
  • 8542.39.00 - Other Monolithic Integrated Circuits

Across all PCB Assemblies we've examined, bill of material costs have only increased by an average of 1.72 percent. In recent years, chip manufacturers have diversified where they are fabricating the semiconductors which helps reduce the impact of these tariff increases. The data also shows the larger ticket items on Bill of Materials, like microcontrollers and sensors, are manufactured in countries like Taiwan, Malaysia, and the United States. This leaves inexpensive semiconductors that are not a significant portion of the costs.

Mitigation Strategies for Tariff-Related Price Increases

While the tariffs pose challenges, they also present opportunities for innovation and strategic adjustments. Here are a few strategies to consider:

  • Identify Which Components Are Affected: For each PCB Assembly component, make sure to identify the Country of Origin (COO). You may need to contact the component manufacturer or your contract manufacturer as most component distributors don’t share this information online. The component packaging usually contains this information.
  • Diversify Component Suppliers: Start looking for alternative suppliers in regions unaffected by tariffs. Countries like Taiwan, South Korea, and Japan are key players in the semiconductor market and may offer viable alternatives. In your design phase, pick alternative components that have a different COO from each other. This will increase supply chain stability and allow you to easily switch components when tariffs or other external factors happen.
    Value Engineering: Evaluate your current designs to identify areas where you can reduce costs without compromising performance. This might involve using more integrated components or finding ways to reduce the overall component count and line items.
  • Collaborate with Your Manufacturer: Engage with your contract manufacturer early in the design process. They can provide insights into component availability, potential cost-saving measures, and design for manufacturability (DFM) considerations that could help you navigate the tariff landscape.

Conclusion

The new semiconductor tariffs are more than just a policy update; they’re a wake-up call for hardware engineers to adapt and innovate. Understanding the market dynamics, anticipating the impacts, and making strategic adjustments will be key to navigating these changes effectively. Stay tuned for our detailed findings, which will offer deeper insights into how these tariffs will affect your projects and provide actionable steps to stay ahead.
In the fast-paced world of electronics, adaptability and foresight are your best allies. Let's embrace these challenges and turn them into opportunities for growth and improvement.


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