Trade Tensions Disrupt Supply Chains

With trade tariffs escalating – particularly with China – manufacturers are seeking alternative hardware supplies, often shifting to US suppliers.

Online manufacturing platform, Fictiv, has released its fourth annual State of Hardware Report, showing the added burden of tariffs on companies already struggling to quickly and affordably bring products to market. This year’s survey found that companies across the US, from large enterprises to small startups, are encountering supply chain and resource constraints as a result of tension between the U.S. and its trade partners, epecially China. To compensate, product development teams are deploying multiple tactics to overcome manufacturing obstacles and create more agile supply chains.

Fictiv, trade tensions, tariffs, China, supply chains, materials, sourcing, domestic suppliers
Sixty-two percent of companies said tariffs have resulted in an increased cost of materials and components. (Image source: Fictiv)

Top level findings from the 2019 report include:

  • Sixty-two percent of companies said tariffs have resulted in an increased cost of materials and components;
  • Thirty percent of projects are over budget, and 38% are behind schedule;
  • Forty three percent of respondents do not have adequate resources to manage their manufacturing operations;
  • As a result, 61% of employees at the affected companies are working outside of their designated job responsibilities.

We discussed the issue of tariffs with Dave Evans, co-founder and CEO of Fictiv, the company that conducted the hardware report.

Design News: What countries are involved? Just China, or will it involve more countries?

Dave Evans: Late last year the Trump administration renegotiated a trade agreement with Mexico and Canada. But today China’s participation in trade talks was thrown in doubt after President Trump announced in two tweets on Sunday, May 5 that he would raise American tariffs on May 10 to 25 percent from 10 percent for $200 billion a year in Chinese goods. While the focus of this latest threat of tariffs has been on China, automotive stocks in Europe have fallen on the suggestion that the China tariffs may be a harbinger for EU automotive tariffs. So, while today’s headlines are focused on China, the implications are often wide reaching.

DN: Is there an expected end in sight?

Evans: At this point, it is anybody’s guess. We do know that while trade tensions are grabbing the headlines today, it is not a new issue. Product companies today must deal with challenges like trade wars, materials shortages, and even natural disasters that can radically impact their supply chain. We tell our customers that designing flexible and agile supply chains is more important than ever. If history is a lesson, these types of geopolitical trade tensions aren’t going away anytime soon. Fortunately, in 2019 technology can play a role in achieving more agility and efficiency.

DN: Are domestic companies able to step up to fill the gap?

Evans: According to our 2019 State of Hardware Report, for both prototype and production manufacturing, more teams are using local options to avoid tariffs, increase speed, and control quality. Specifically, for prototyping, 51% of respondents told us that they use local shops as part of their prototyping portfolio and 47% use on-demand manufacturing platforms such as Fictiv as part of their prototyping portfolio. Once in production, the survey showed that 48% use local contract manufacturers for assembly.

DN: What industries are involved?

Evans: We’re seeing broad impact across different industries. The most recent threat is focused on the automotive industry, but we’ve also seen tariffs on capital goods made of materials like steel and aluminum. Capital goods are intermediate products that are used in producing other goods, rather than being bought by consumers. Tariffs on capital goods have wide ranging impact across many different industries, as they impact a company’s ability to build products cost-effectively.

DN: Have these tensions affected to ability to deliver?

Evans: Escalating tensions in global trade had a major impact on product development companies last year. As a result, teams are leveraging tariff engineering strategies – a methodology designed to reduce import tariffs as much as possible – to mitigate risk, remain agile, and keep costs down. Our 2019 State of Hardware Report shows that 62% of respondents say tariffs have increased their material and component costs, and 19% have experienced product launch delays. Anecdotally, we heard that some product teams are moving more sourcing and manufacturing stateside or they are paying closer attention to the state of completeness when products are shipped, since partially assembled products may be classified at a lower tariff than a fully assembled version.

DN: How long have trade tensions been an issue?

Evans: Trade tensions are not new. In the 1930s the Hoover instituted tariffs around agriculture, in the 1980s Ronald Regan used tariffs on Japanese autos and in the late 1990s the US and Europe were trading tariffs over handbags and ham. Today’s issue centers primarily around trade tensions between the US and China and has been a primary point of contention for the Trump administration.

Rob Spiegel has covered automation and control for 19 years, 17 of them for Design News. Other topics he has covered include supply chain technology, alternative energy, and cyber security. For 10 years, he was owner and publisher of the food magazine Chile Pepper.

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