Q1 2025 Supply Chain Report

Since Tariffs are a top topic for most people in the industry these days, we will begin with this topic.

On January 1, President Biden’s tariff increase on semiconductors manufactured in China from 25% to 50% went into effect.  While this will significantly impact on the industry as a whole, the good news is that it should not significantly affect our customers.  Over the past several years since the first tariffs were announced, semiconductor manufacturers have focused on diversifying manufacturing sites to minimize impact to the US-based customers.  We analyzed all parts currently purchased by Microboard, and almost all of the affected parts are low cost components such as diodes, transistors and LED’s.  We have already contacted customers about the most significant effects of this legislation.  As new demand for different assemblies is added by customers, there could be significant impacts on those components.

This follows earlier restrictions Biden placed on exports of certain higher technology semiconductors, primarily used in defense and security applications, as well as certain semiconductor manufacturing equipment imports into China.

China has responded by banning exports to the United States of precious minerals gallium, germanium and antimony, which are widely used in defense component applications.  Initial estimates are that this could potentially impact approximately 700,000 electronic components produced by over 1000 manufacturers.  The US is estimated to import 95% of gallium, 80% of germanium and 85% of Antimony from China, which is by far the leading source of gallium and germanium.  Russia is the leading producer of Antimony. To prevent significant shortages or component redesigns, negotiations between the two countries must happen quickly.

President-Elect Trump has said that he will add an additional 10% on all products coming from China on day 1 of his presidency, along with 25% tariffs on all products coming from Mexico and Canada. This could be significant for our industry as they supply the US with large amounts of oil, metals, plastics, precious minerals and manufacturing equipment.  The list of items imported from these countries is much longer than this list, but for purposes here, we are focusing just on what will affect our industry.

Trump has further threatened 100% tariffs on imports from BRICS (Brazil, Russia, India, China and South Africa, as well as others that have since joined or are considering to join) countries if they are to change from the US dollar as standard currency.  This will certainly have a significant effect on semiconductor supply.  He has more recently threatened tariffs on the European Union as well.

Digging further into this, threats of tariffs could significantly slow investment.  Companies have been focusing on moving US-bound product manufacturing out of China for several years.  Much of this investment has gone into Mexico or SE Asia.  However, with the threat of tariffs going into these territories, companies may hesitate to proceed with further investment until there is greater certainty on what the tariffs will entail.  Trump’s stated goal is to continue to “Buy American”, but many companies and industries are already struggling to find workers to meet demand, and manufacturing costs in the US are still significantly higher than in other countries on many commodities.

While we will not know how many of these tariffs he will implement for at least a few more weeks, negotiations will hopefully take place to ensure the continued strength of the global economy.