Tariff Free Options: Designing and Manufacturing Electronic Controls

The unpredictability of tariffs has made it difficult for companies to plan with confidence. With ongoing instability, long-term decision-making becomes challenging, and even short-term solutions are hard to implement. Diversification is key to protecting your bottom line. OEMs reliant on exclusive partnerships with Chinese ODMs will find it increasingly difficult to avoid tariff-related costs.

At 20% tariff, sourcing from China remained viable, but with potential tariff increases in April 2025 expected to rise to 45%, electronic board assembly may start shifting elsewhere. While China remains a leader in electronic component supply, the law of diminishing returns will eventually reduce the advantages of this offshore model. To mitigate risk, companies must diversify partnerships and adopt portable designs that allow flexibility in sourcing from non-tariff regions. A partner like Avnan, with DFx (Design for Excellence) expertise and a global supplier network, can help develop a strategy to minimize tariff impact and protect margins.

Tariff Free Product Design

Firstly, design services (basic architecture, hardware and firmware) are not subject to tariffs as they don’t fall into the typical tariff framework. Engineering design services can be performed in any country with no additional taxes imposed. However, the prototype that is built could be subject to tariff when imported into the US, even if it is not intended for resale. There is an exemption under the Temporary Importation under Bond (TIB) if the product is imported for testing or evaluation purposes. Countries that offer cost-effective, highly skilled labour for design services include Canada, Mexico, Vietnam, India, Malaysia, Indonesia, Taiwan, Thailand, South Korea and Colombia. Under the current USMCA agreement (as of March 2025), electronic goods imported from Canada or Mexico, including prototypes, are exempt from tariffs, provided the product meets the rules of origin requirements. Get the latest updates on tariffs and the USMCA agreement.

Asia Still the Most Cost-Effective Sourcing Location

Depending on the importing country, China and Vietnam are still considered the top locations for sourcing cost-effective electronics, particularly custom and hard-to-find components. China’s mature, vertically integrated ecosystem streamlines sourcing and assembly, offering businesses a seamless, one-stop solution. If the communication barrier or time zone difference is an issue, seek a partner with boots-on-the-ground to help you manage this process. Keep your sourcing activities in China as it remains the most cost-competitive solution that the US cannot easily replace.

Flexible Options for Assembly

A product is “Made in (Country)” if the physical good is “substantially transformed” into another good. For example, a product is considered “Made in (Country)” if the PCB undergoes assembly, testing, and firmware loading in that country, and the product (e.g., the smart thermostat) is significantly altered from its initial form (raw materials or parts). This transformation might include the integration of critical components, functional testing, and packaging. If a majority of the product’s value and manufacturing processes take place in that country, it would be considered the country of origin and the corresponding tariff may apply. Cost-effective options for assembly in non-tariffed countries include Vietnam, India, Malaysia, Indonesia, Taiwan, Thailand, the Philippines, South Korea and Colombia.

Ways to Navigate the Changing Economic Uncertainties

Protect the future of your business by maintaining a flexible, portable design that isn’t tied to a single partner located in a tariff-affected country. Instead, seek partners who can offer versatile cost-effective solutions and can manage the end-to-end process removing the complexities of cross-border logistics. Avnan has manufacturing capabilities in China, Vietnam, India and Canada with options in other regions such as The Philippines and Columbia. By leveraging our engineering and supply chain expertise in Canada you get the best of both worlds: North American skills and talent with a currency exchange advantage and access to the world’s most cost-competitive markets.

Here is an example of a new strategy for product design and manufacturing that mitigates risk during a trade war.