Adapt to Tariffs Using Effective Business Strategies

The United States (US) electronics industry is undergoing a significant transformation in an attempt to re-shore semiconductor manufacturing while maintaining its global manufacturing presence (Figure 1). Ongoing tariff discussions and changes complicate an already challenging planning environment.

Figure 1 : Shown is the breadth of semiconductor activities spread across the US. (Image source: Semiconductor Industry Association)

Far from a temporary blip, tariffs are part of an ongoing strategy aimed at promoting domestic manufacturing and applying pressure on partners with trade practices deemed unfair.¹ For OEMs in particular, understanding and adapting to this evolving landscape is paramount for maintaining competitiveness and continuity.² The path forward involves focusing on strategic management of market realities over time.

Industry-wide impact and challenges for OEMs

Proposed and existing tariffs potentially impact a wide array of crucial inputs for the electronics industry, from raw materials to sophisticated components. At the core of these changes are substantial tariffs on semiconductors originating in China. This is important, given that over 36% of these vital building blocks used by US OEMs come from China, according to a report from Cognitive Market Research.³ Further, products that contain semiconductors are potentially still subject to new tariffs, creating considerable confusion in the sector regarding classification.

The inherent ripple effects of tariffs are significant and include the potential for cost increases and operational challenges throughout the electronics supply chain. Many US electronics companies operate on tight profit margins and rely on “just-in-time” manufacturing, making them highly sensitive to sudden cost increases or delays. Manufacturers are reporting a notable rise in their input costs, particularly for crucial components traditionally sourced from China.⁴

Beyond direct costs, the industry needs to manage supply chain gridlock and unpredictable shipping delays, especially for critical components like chips, batteries, and circuit boards, which can severely disrupt product launch and production cycles. Companies must decide whether to absorb these rising costs, which can substantially erode already thin margins, or pass them on, risking lower sales.

Strategic advice for navigating tariff challenges

In this volatile environment, OEMs need a proactive and layered strategy to protect their margins and ensure supply chain integrity. Of course, using technology to optimize both supply chain and manufacturing will help insulate from shifting costs. However, innovative OEMs should look for additional ways to optimize design, sourcing, and delivery to minimize the impact of tariff expenses. Success will depend upon a combination of smart sourcing decisions, creative design, and close monitoring of trade policies.

First, organizations should undertake a supply chain audit with an eye toward opportunities for diversification. Over-reliance on any single country, particularly China, exposes companies to considerable tariff and geopolitical risks. OEMs should actively identify and qualify alternative suppliers in regions with lower tariffs or tariff exemptions, such as Vietnam, India, Mexico, and Taiwan.⁵

Fair and careful contract negotiation is also key. OEMs should engage in open communication with their suppliers and customers to share the burden of tariffs. Adding clauses to contracts that allow for pricing adjustments when tariffs apply can help distribute the cost increase across the supply chain, maintaining relationships and price stability.

Bringing production closer to home, particularly to Mexico or even the US Midwest, can be another smart strategy, especially as opportunities for domestically made chips are increasing. (Figure 2). Government incentives, such as the CHIPS Act, are fueling investments to reestablish domestic chip production capacity. For high-value or high-risk products, domestic production can offer improved supply stability and faster time-to-market.

Figure 2 : Over the next decade, US fab capacity is set to increase dramatically. (Image source: The Semiconductor Industry Association)

As they design their end-products, OEMs should focus on creating designs that reduce reliance on components sourced from countries targeted by tariffs. In the design process, OEMs should look at re-engineering products for flexibility using interchangeable or modular parts available from multiple suppliers. Correctly classifying goods under the Harmonized Tariff Schedule (HTS), a standardized system for categorizing traded goods, and conducting regular audits of HTS codes can lead to significant savings.⁶ These codes ensure that the manufacturer is paying the correct duty rates and support spotting opportunities to identify products that have duty-free classifications. Further, by maintaining compliance, OEMs can avoid fines and audits and prevent customs delays created by misclassification.

Taking trade benefits

Finally, manufacturers will need to remain aware of the trade and tariff landscape. Initially, OEMs should explore sourcing components from countries with an existing free trade agreement (FTA) with the US, such as Mexico, Canada (under USMCA), South Korea, or Singapore. Shifting production or component sourcing to these regions can help avoid tariffs.

Using foreign trade zones (FTZs) and bonded warehouses is another helpful strategy. These designated areas within the US allow companies to defer duties until goods are officially sold or removed from the zone, improving cash flow. They also enable re-exporting products without incurring US import duties and can facilitate tariff reclassification.⁷

For OEMs that export a portion of their products, duty drawback programs allow for a refund of up to 99% of tariffs paid on imported goods that are later re-exported or destroyed. This can significantly recoup costs for companies engaged in global supply networks.⁸

Over time, OEMs should continue to monitor trade policy developments and actively engage with industry associations. Contributing industry data and submitting comments during tariff review processes can help shape more targeted trade actions that achieve security aims without unnecessarily disrupting supply chains. It is essential to treat trade policy as a dynamic business variable, rather than a static background factor.

Tariffs are profoundly reshaping the US electronics industry. Success in this turbulent environment will hinge on combining agility with research-driven foresight. By proactively diversifying sourcing, optimizing product designs, leveraging trade tools, investing in advanced technologies, and maintaining strong supply chain partnerships, electronics manufacturers can navigate the current tariff turbulence and emerge more resilient and competitive in the years ahead.

References:

1: https://www.tradecomplianceresourcehub.com/2025/07/25/trump-2-0-tariff-tracker/

2: https://reboundeu.com/insights/blog/how-trumps-2025-tariffs-are-reshaping-the-electronics-supply-chain/

3: https://www.youtube.com/watch?v=rjk0bfnFwB4

4: https://budgetlab.yale.edu/research/state-us-tariffs-may-12-2025

5: https://blog.matric.com/china-tariffs-on-electronics-manufacturers

6: https://blogs.tradlinx.com/mastering-hts-code-cost-analysis-unlocking-savings-and-ensuring-compliance

7: https://tax.thomsonreuters.com/blog/u-s-foreign-trade-zone-ftz-vs-customs-bonded-warehouses-understanding-the-differences/

8: https://www.cbp.gov/trade/programs-administration/entry-summary/drawback-overview