The Trump administration moved swiftly to make good on its promise to push for more favorable trade dynamics for the US by imposing tariffs on Mexico, Canada, and China. How does this affect embedded computing specifically?

The Good News 

While the Canada and Mexico tariffs are making imports prohibitively expensive for a wide variety of goods and raw materials, computers aren’t really affected by these measures.

Almost no advanced electronic components are sourced from these countries, which means the impact on embedded PC prices from these tariffs is virtually nil.

Also unaffected are imports from Taiwan, which is where most of the processors come from. And while there have been some vague threats of reciprocal tariffs to bring back chip manufacturing into the US, for now it seems that the trade will continue, with Taiwan investing in US facilities to tide things over. 

The Bad News 

The increased China tariffs are the cinch here. To be fair, imports from China were already under 25% tariffs, but the rate has been hiked by another 10%, resulting in a 35% markup in total.

This is putting pressure on the pricing of industrial computers as most of the electronic components are imported from China. The higher costs will ultimately be passed on to the customers; 10% higher prices may not seem like much, but embedded PCs are often bought on a scale, so that translates into a significantly higher bill.

Are Tough Times Ahead? 

There are no signs of the China tariffs ceasing any time soon, so we need to accept this as the new baseline and operate accordingly. Unlike the pandemic, the supply lines aren’t disrupted, so at least availability is not an issue.

And delaying new acquisitions will not solve the problem; even repairs and replacements of existing systems require components that are subject to the same tariffs. Even for new setups, the long-life cycles of embedded systems means that you will get sufficient value out of your investment, even with the higher price.

What About Indirect Imports? 

We saw companies adopting various workarounds when the 25% Chinese tariffs were first applied, finding alternative methods of importing Chinese goods into the country. Mexico, for example, has emerged as a leading destination for components manufactured in China, which are then assembled in Mexico and imported into America. 

The tariffs on Mexico (matching the China tariffs) might be an attempt to close this loophole, as assembling the products in Mexico would not help avoid the import tariffs. At the same time, there are many other countries that can end up taking this role instead. Unless the administration decides to tariff entire categories of imports, a certain level of indirect imports dodging the tariffs would take place.

Keep in mind though that as of now this mostly applies to automobile parts, since electronics are a tad harder to assemble, and the infrastructure for that is still coming up.

Will This Improve Things in the Long Term? 

The idea behind the tariffs is to make locally manufactured goods competitive, reducing America’s dependence on imports for critical components like electronics and chips. Of course, it will take time for the domestic industry to scale up to that level, which means some pain in the interim.

Even when that does happen, prices are unlikely to come down, since tariffs are what enable local alternatives to compete with cheaper Chinese products in the market.

On the flip side, this cuts down on the transport costs of shipping these components and makes the supply chain resistant to global disruptions. Which, as the pandemic showed us, is essential to ensure we can meet our own needs in times of crisis.

The Road Ahead 

As the trade war heats up, many industries have been left in the lurch of tariffs and counter-tariffs. The PC industry is comparatively better off since the most important key components come from Taiwan, which is free from tariffs.

That being said, a computer is more than just the processor, and a lot of the components that go into assembling a system come from China. For the foreseeable future, higher prices are here to stay, and industries will have to absorb the cost.

In the longer term there is scope for our domestic electronics manufacturing to pick up. We are already seeing TSMC investing in semiconductor fabs in the US, which brings the crucial backbone of computing here.