EMS & The Economist - Tariffs Special - April 13th, 2025

With tariffs monopolizing an extraordinarily rapid news cycle, I ask IPC Chief Economist and regular guest, Shawn DuBravac, to appear in this impromptu episode of EMS & The Economist late last evening (around 10:30pm in Washington DC).

Tariffs are changing by the hour, not just by the day. What began as reciprocal measures against specific countries has morphed into a sectorial approach targeting entire industries regardless of manufacturing location.

The market response has been predictably volatile, with tech stocks swinging wildly as announcements and clarifications emerge in rapid succession. Business leaders across the electronics landscape find themselves paralyzed by uncertainty, delaying investment decisions while trying to navigate the shifting policy landscape. This hesitation alone increases recession probability, with many experts, including our guest IPC Chief Economist Shawn DuBravac, now seeing an economic downturn beginning in Q3 2025 as likely.

Most revealing is the likely motivation behind these tariffs - not merely to punish foreign manufacturers or rebalance trade relationships, but to drive domestic electronics production within the United States. Yet even American-made electronics rely heavily on imported components, creating a complex challenge that tariffs alone cannot easily solve. As companies worldwide reconsider their market priorities, there's growing concern that global supply chains might realign in ways that reduce American centrality in the electronics ecosystem. 

The electronics industry stands at a pivotal moment. How manufacturers, policymakers, and investors respond to these unprecedented challenges will reshape global trade relationships for years to come.

EMS@C-Level is hosted by global inspection leaders Koh Young (https://www.kohyoung.com) and Global Electronics Association (https://www.electronics.org)

You can see video versions of all of the EMS@C-Level pods on our YouTube playlist.

Transcript

Weekend Tariff Developments

Philip Stoten 0:07

Hello, it's Sunday evening in Washington. It's Monday afternoon here in Melbourne, australia. Sean, great to see you again. Great to chat. We normally have a bit of a longer hiatus between our conversations, but it feels like we could talk every day about tariffs at the moment conversations, but it feels like we could talk every day about tariffs at the moment. Where are we right now? Is there anything in the news cycle I've missed in the last day?

Shawn DuBravac 0:37

What's happening as we speak. There was a lot that happened over the weekend. There were announcements that happened Friday night that looked like electronics products were going to be largely carved out, excluded from the tariffs it looked like that that were going to be largely carved out, excluded from the tariffs. It looked like that that was going to include things like computers, smartphones, semiconductor equipment. There was a list of HTS codes that qualified and then, as the weekend progressed, even into Sunday night, it looked like those. You know those exclusions have changed. There were some clear interviews with President Trump, as well as some of his advisors, that suggest that there are, you know, no products that will be saved from tariffs.

Sectorial vs Reciprocal Tariff Approach

Philip Stoten 1:22

Yeah, yeah, and the implication was that those exemptions on smartphones would be short lived. It feels like there are some very substantial companies in the US that rely on China to make smartphones. If they were to move them elsewhere, it's going to happen very, very slowly. So you know, there are certainly issues there. I think the biggest surprise in the last week was the 90-day pause on the reciprocal tariffs. That seemed quite sudden, but also quite a long pause. That was a surprise to, I think, everybody outside of the US. Was it a surprise? It seemed to be a surprise to the market and the Fed as well.

Shawn DuBravac 2:00

I think so. I think every day is a surprise when it comes to tariffs. I think every minute is a surprise. Certainly, we had a lot of surprises over the weekend. I think what we see the administration doing with respect to electronics is moving away from a reciprocal tariff approach, where it's designated by country, and focusing on a sectorial approach. I think why that's important for electronics is because it means that it isn't enough to just say OK, we're not going to import from China, we're not going to import from India, and you have seen a diversification, which we have talked about on this program, happen. We've been decoupling from China, We've been diversifying in Southeast Asia. Places like Vietnam, India have been big winners. Mexico has been a big winner, but by all indications over the weekend it seems like a sectorial approach suggests it doesn't matter where they're being imported, that they will still face tariffs.

Shawn DuBravac 3:09

President Trump said on Air Force One as he was returning to Washington from Florida tonight, Sunday night, here in Washington, that he would be announcing those rates. Initially he said this week. Then he also seemed to clarify and said Monday. So we'll be potentially looking at tariffs that will impact semiconductors and perhaps more broadly, electronics on Monday and if not Monday, perhaps later this week this sectorial approach, but it also appears that the administration will take they're going to take an approach around 232, Section 232, which is these national security investigations. Normally those take about 270 days to complete. President Trump has suggested that this might be an accelerated timeline, but those typically have a period for comments where trade associations, companies and others can make comments about the potential ruling. That take almost a year, typically take 270 days or so, but this administration has been moving very quickly obviously no-transcript.

Market Response and Recession Outlook

Philip Stoten 4:36

Yeah, it's phenomenal in terms of its speed and while you're saying that, I'm thinking I need to get this show edited and out pretty much right after we've finished talking. The market response last week was very much up and down and up and down. What did it look like as the week closed out and what is it going to look like, do you think, as the markets open tomorrow morning?

Shawn DuBravac 5:01

Well, we've seen the Asian markets already opening, and initially it looked like the technology sector was responding positively, I think, as you would expect, to what looked like an indication that semiconductors and broadly the electronics industry would be saved from tariffs and they would be coming in. But that has all, I think, unwound in the last 12 to 24 hours, and so I think the market is still going to be jittery. I think that there is a lot of uncertainty. I think sentiment has declined, notably not just among consumers, but also among executives, and it's very hard to turn that quickly. It's very hard to change their mind.

Shawn DuBravac 5:53

So I think the probability of a recession has risen. Notably, I think it's still very high. I think there's a very high probability that the US is in recession in 2025, probably, if I had to pick a time period, starting in Q3, perhaps a shallow recession, but a recession nonetheless. Now, that isn't inevitable. That could be reversed, but it will take not only a reversal of the policy, but it'll also take clarity that drives back positive sentiment and that improves confidence in the economy.

Philip Stoten 6:34

Yeah, and that lack of confidence in the economy that comes from the variability in the tariffs. It comes from all kinds of different things, but it comes also from a concern about inflation, that these tariffs are going to drive up the costs of goods. Is that the general feeling in the market, and is that also the feel of the Fed that's got to make a decision on interest rates shortly?

Shawn DuBravac 6:56

Yeah, no, we did see some Fed members come out Friday and say we're watching the markets, we've got you, we're going to move in and we'll make adjustments as needed. We're watching the situation closely, which was the first time that we have seen the Fed say we're paying attention to what's happening in the markets right now. Fed say we're paying attention to what's happening in the markets right now. If you look at other previous announcements, last week we received employment numbers and unemployment rate. We had a pretty good employment report in the US for March and you saw Chair Powell say look, we're going to continue to take a wait-and-see approach.

Federal Reserve's Watchful Stance

Shawn DuBravac 7:40

There's a lot of uncertainties and so I think that also made the market nervous that the Fed wasn't willing to jump in and intercede if needed because they were so anchored to what was happening in inflation. I think the Fed has opened up that parameter a little bit and they're going to jump in if things start to cool more rapidly than they anticipate. I think they are going to jump in if things start to cool more rapidly than they anticipate. I think they are going to have to balance what's happening with inflation.

Shawn DuBravac 8:06

But I think what's really driving the gyration in the market is the constant changing of the wind and investors are not sure how to interpret it, because they're not sure how businesses are going to interpret it, and ultimately, what tends to typically drive recessions is a major shift in business investment. So you see a shift in hiring, you see a shift in CapEx. You see those type of things happen. So if business leaders feel uncertain about the situation, if they're not sure what the environment is going to look like, they're going to just pause investment and if that happens at a large enough level, that will ultimately be what pushes us into recession.

Balancing Global Trade Relationships

Philip Stoten 8:57

Yeah, my sense. I spoke to a couple of leaders in European EMS last week and both thought the dust was settled. We were waiting for the dust to settle. It was very much a wait and see approach and that pragmatic approach, but that was certainly delaying the decision making of their customers. It was delaying the decision making they had outside of the investment that they'd already got planned making. They had outside of the investment that they'd already got planned. So it was kind of slowing things down. When you look at what the current administration is trying to do with the tariffs, do you think there are issues that are much more significant than others? I mean, is it mostly? Is a lot of it about China? Is it a lot of it about specific segments? In some ways the relationship with Europe seems to have settled a bit and Europe took off their retrospective tariffs that were a response to the reciprocal tariffs. So there's a pause. As a result of the pause, what do you think are the big battles out there in the trade war at the moment?

Shawn DuBravac 10:05

I think some of it is this drive to accelerate the decoupling from China. I think some of the motivations seem mixed, and even officials within the administration seem to mention different things at different times. I think one of the things we saw around electronics over the weekend was an indication that the tariffs are designed to incentivize domestic production. So with semiconductors can we create a tariff regime that will drive notable and meaningful investment in the electronic supply chain within the US, supply chain within the US, and so I think that made clear one of the motivations, especially around electronics, is not to punish manufacturers who rely on supply chains outside of the US, but to really motivate and to incentivize domestic production.

Philip Stoten 11:09

So that's a fine line, isn't it? That's a bit of a balance. It is a fine line.

Shawn DuBravac 11:12

It is a fine line because even domestic producers rely heavily on components that are produced elsewhere, and so we tend to look at tariffs and we think it's all about foreign countries, foreign companies. But at the end of the day, tariffs on things like PCBs or other materials that are used by domestic producers in the US are still going to see a price rise, and so even electronics made in the US will be more expensive, because the components that they rely on and the inputs that they rely on will be more expensive, because the components that they rely on and the inputs that they rely on will be more expensive.

Philip Stoten 11:52

Yeah, and when you look at the work IPC is doing in Washington, it really is a question of providing as much clarity to the administration and helping the administration to understand how complex and how multi-layered the supply chain is. As you go down, even through scope one and scope two and scope three, all the way down, it's a very complex supply chain. That's a big and important job for Chris and Rich and the team that really deal directly with that.

Shawn DuBravac 12:24

Definitely, and they are working night and day on these issues, and, honestly, they had been prior to the rise in tariffs. I think that the ultimate goal, all the goals, are probably generally aligned, and that's to strengthen electronics manufacturing in the US, also to strengthen it globally within the markets around the world that IPC services, and, at the same time, in strengthening those markets, you don't want to inadvertently weaken them because of the policies that you're putting into place, and so we need clarity and certainty in order to drive investment, and so I think it's important to recognize what the end goal is and then to assess are these type of policies going to help us achieve what we're trying to do? And, in the case of tariffs, I think there's a lot of questions about how effective they will be at ultimately incentivizing new investment. And then, secondly, a changing policy that is gyrating and changing from day to day or hour to hour can be a very challenging environment to drive new investment. Companies are simply going to wait and see what the landscape looks like.

Philip Stoten 13:58

Yeah, it's driving anxiety and anxiety doesn't drive good planning or investment. The last question I just wanted to ask or consider with you is I'm in a very privileged position that I get to speak to leadership in the US, but I also get to ask or consider with you is I'm in a very privileged position that I get to speak to leadership in the US, but I also get to speak to leadership in Europe and leadership in Asia? I spoke recently to the CEO of an EMS company in Hong Kong and they were talking about investment. Should they be buying something in the US? Should they be focusing their sales effort outside of the US so they're less dependent on the US market?

Philip Stoten 14:32

When I look at the conversations I've had with Europeans, it's well, how much of our business that we do in the US are we fulfilling in the US? And if we're not fulfilling it in the US and we're fulfilling it from somewhere else, how significant a part of our business is that, and should we be focusing on other markets? So I almost sense there's a view that people have got to work around this when they're thinking about their global trade and there's a risk that the US becomes a little bit isolated and it's like well, we can't see any clarity on that problem. Let's push that to one side for a minute and focus on, maybe, a better trading relationship between China and Europe, or a better trading relationship between other Asian partners and other markets. Obviously, the US is the largest of the consumer markets, but it's not the only one. How do you see that and is that a concern? Is there an awareness in Washington that that could happen?

Shawn DuBravac 15:33

I think both things can be true.

Shawn DuBravac 15:35

If you're a company that's operating outside of the US, you're clearly looking at strengthening your markets and your relationships around the globe.

Future Outlook and Market Integration

Shawn DuBravac 15:47

You see, president Xi is in Southeast Asia this week as he is looking to strengthen relationships with others in the region, perhaps seeing them as important in markets that he can help serve so that they can continue to grow their manufacturing base in China, even when they're losing some of what they might have historically allocated to the US.

Shawn DuBravac 16:14

So I think that certainly can be true if you're operating outside the US and, at the same time, the US is a very large market for many industries, not just the in market for consumers many industries, not just the in-market for consumers. Obviously it's a very large aerospace and defense industries. You've got a large auto industry, and so you have a lot still of manufacturing in the US that, if you're making inputs into manufacturing that you're going to want to serve, and so I don't think that you can ignore the market and think that, oh, the rest of the world is going to provide us all the growth that we need. I think both cases will be true and especially when it comes to electronics, the integration with electronics globally, I think, is perhaps more pronounced than any other industry, and so the need to have strong relationships globally, to maintain those ties and those networks, I think will be key, even in a world where the tariffs create a tremendous amount of uncertainty and even create headwinds for certain segments of the market.

Philip Stoten 17:34

Yeah, again, it's a balancing act on their part. The news cycle is quicker than I've ever seen at the moment and it's an interesting challenge. I'm sure we'll be talking again very soon, both on and off the record. Sean, thanks so much for your time today. Safe travels back home. We'll chat soon. Thank you much for your time today, um. Safe travels back home and we'll chat soon, thank you.