Mitigating the Impact of Tariffs: Strategic Solutions for OEMs in the Electronics Sector

The U.S government’s tariff threats on Canada and Mexico will raise costs for businesses, particularly in the electronics sector which relies on cross-border trade. While the US-Mexico-Canada Agreement (USMCA) was designed to remove trade barriers amongst the countries, new policy decisions outside this agreement could disrupt supply chains and increase costs.

Contrary to common belief, tariffs are paid by American importers who then pass these costs on to consumers, driving up prices for finished goods like appliances, consumer electronics, and HVAC systems. While tariffs are intended to encourage domestic production and boost the economy, the reality is more complex. High infrastructure costs, limited access to raw materials, labor shortages, and regulatory barriers make reshoring manufacturing to the U.S. challenging—especially within a short timeframe.

OEMs who rely on offshore production will undoubtedly feel the impact of these tariffs. To remain competitive, OEMs must reassess their operations and develop strategic solutions to mitigate disruptions. Beyond rising costs, tariffs disrupt pricing, supply chains and market competitiveness, forcing businesses to reevaluate sourcing strategies and long-term investment decisions in an increasingly uncertain economic environment.

Tariff Increases Component & Raw Material Costs

When tariffs drive up input costs, importers’ margins are squeezed. To offset this impact, businesses pass these costs along the supply chain, leading to higher consumer prices and reduced competitiveness.

If retaliatory tariffs are imposed by the other party, the escalation erodes any remaining mutual benefits from the trade agreement. If prolonged, the cost pressures will lead to lower demand, slow sector growth and impact profitability for the entire industry.

Tariff Causes Supply Chain Disruption

Tariffs create instability in the global supply chain by increasing procurement costs, affecting sourcing strategies and creating logistical challenges. In the short term, businesses may experience minor disruptions as they assess cost implications and adjust logistics to manage costs. Customs clearance delays will extend lead times, impact time-to-market and disrupt just-in-time inventory models.

If tariffs persist, businesses will shift their strategy and seek alternative suppliers in non-tariff regions or consider reshoring certain aspects of their manufacturing process to reduce costs. But seeking domestic partners, rebuilding supply networks and restructuring ecosystems with new market players require time, investment and long-term strategic planning.

Sourcing Challenges

For industries facing evolving regulations, like the HVAC sector, sourcing compliant components is already a complex task. Tariffs on critical components add another layer of complexity in sourcing, forcing businesses to find cost-effective, regulation-compliant alternatives in non-tariff regions. Managing through these evolving regulations requires flexibility and strategic supplier relationships.

Reduced Market Competitiveness

As tariffs drive up input costs, OEMs will have little option but to raise consumer prices, reducing their market competitiveness. Higher prices will weaken demand for their products, making it harder to compete with lower-cost alternative products. This challenge is even more acute in price-sensitive markets where small increases in price can significantly impact demand and ultimately revenue. Higher prices affect customer preferences threatening long-term business viability and competitiveness.

Managing through Tough Economic Times: Diversity is Key

While passing tariff costs down to consumers may be the simplest short-term solution, it is not a viable long-term strategy. To remain competitive, OEMs must explore options to reduce risk by optimizing costs and diversifying supply chains.

One effective strategy may be to partner with suppliers with access to or located in non-tariff regions. While this shift can mitigate exposure, it poses significant challenges for OEMs with highly integrated and interdependent global supply chains or those lacking resources to explore new partners.

The most viable solution may be to collaborate with a diversified global partner, like Avnan, who offers end-to-end solutions—ranging from design to supply chain—and who can help navigate the complexities and risks of trade wars, offering more stability and flexibility.

With global facilities and experts in regions throughout the world, Avnan offers viable solutions combining reshoring, nearshoring and offshoring options for certain aspects of the product development process. By leveraging its global network, Avnan provides access to high-quality, cost-effective components while minimizing tariff exposure. Diversity is key to mitigating risk and vulnerability to the economic instability and Avnan, can offer this peace of mind and long-term business viability