Semiconductor tariffs imposed in the trade war will soon lead to price increases

Kill one thousand enemies and lose eight hundred of your own. The US-China trade war has evolved into a real war. As electronic components products appear in the tariff list one after another, a new round of collection is about to begin. What kind of impact will it have on the semiconductor industry, especially the component supply link? We have sorted out the information on the Internet and hope to give you a reference.

(Special note: The information in this article is compiled from the Internet and does not represent Fuchang’s views. You are welcome to leave a message below to express your views)

Background:

On June 15, the Office of the United States Trade Representative (USTR) issued a statement to impose a 25% tariff on goods worth 50 billion US dollars imported from China in 2017, which will be implemented in two stages (34 billion US dollars + 16 billion US dollars). On July 10, the Trump administration released a plan to increase tariffs on 200 billion US dollars of Chinese goods, including some goods specifically targeted at "Made in China 2025". The additional tariffs were about 10%, and a statement was subsequently issued that it planned to increase the tax rate on 200 billion US dollars of Chinese products from 10% to 25%.

On June 16, the Chinese government announced a 50 billion tariff list, which will be implemented in two phases (34 billion + 16 billion), and will impose a 25% tariff on some goods originating from the United States, in response to the US decision. On August 3, the Office of the Tariff Commission of the State Council issued an announcement stating that in response to the unilateral escalation of trade frictions by the United States, China was forced to take countermeasures. It was decided to impose tariffs ranging from 25%, 20%, 10%, and 5% on 5,207 tariff items of about 60 billion US dollars originating from the United States. Products such as chip tantalum capacitors, multilayer ceramic capacitors, chip aluminum electrolytic capacitors, resistors, and connectors all appear on the list.

Amid this back-and-forth, the US-China trade war continued to escalate, expanding the types of commodities involved in this round of trade disputes between the two countries, with semiconductors becoming the first to be affected.

up to now,

Overview of the semiconductor-related tariffs that have been imposed

The first round from the US :

On July 6, the first round of tariffs worth $34 billion of the US $50 billion plan came into effect. The categories of semiconductors/components involved: LEDs, PCBs, laser equipment, semiconductor equipment, capacitors and resistors, transistors, thyristors, diodes, photosensitive devices, touch screens, etc.

Targeted country of origin: China,

Increased tariffs: 25% (implemented on July 6)

Click here for detailed list link

China’s first round of response :

The first round of 34 billion of China's 50 billion plan took effect, and tariffs were imposed on soybeans, other agricultural products, automobiles, aquatic products and other imported goods originating from the United States. Among them, not many semiconductor-related products were involved .

Increased tariffs: 25% (effective from July 6)

Click here for detailed list link

Second round from the US :

On August 8, the United States fired the second shot. The USTR announced the second batch of tariffs on Chinese imports worth $16 billion, which will take effect on August 23, further escalating the Sino-US trade war. A large number of semiconductor/component categories are involved: including motors, processors and controllers, memories, amplifiers and other electronic integrated circuits, voltage and current regulators, antennas, optical fiber cables and their connectors, and equipment/parts used to manufacture semiconductor devices or electronic devices.

Targeted country of origin: China,

Increased tariffs: 25% (to take effect on August 23)

Click here for detailed list link

Some of the pictures are excerpted from: USTR announced the second batch of $16 billion tariff list (effective from August 23)

China’s second round of response :

On August 8, in response to the second round of tariffs of 16 billion US dollars fired by the United States, China also decided to impose tariffs on about 16 billion US dollars of US imports from August 23, with various types of cars and car accessories occupying more than half of the list. Among them, the semiconductor/component category that bears the brunt is connectors.

Country of origin: United States,

Increased tariffs: 25% (will take effect at 12:01 on August 23, 2018)

Click here for detailed list link

other:

The U.S. Trade Representative’s Office is evaluating a 10% tariff on an additional $200 billion of Chinese goods, and is even considering raising the rate to 25%. U.S. President Trump has also hinted that he may impose tariffs on all Chinese imports; last year, the total value of U.S. imports from China exceeded $500 billion.

As a counterattack to the US move, on August 3, the Office of the State Council Tariff Commission issued an announcement stating that China was forced to take countermeasures in response to the US unilateral escalation of trade frictions. With the approval of the State Council, the State Council Tariff Commission decided to impose tariffs ranging from 25%, 20%, 10%, and 5% on 5,207 tariff items of about US$60 billion originating from the United States. Among them, chip tantalum capacitors, multilayer ceramic capacitors, chip aluminum electrolytic capacitors, resistors, connectors and other products all appear on the list. (Currently pending, no announcement for implementation)

Announcement and list link, click to learn more

Image excerpt: China announced on August 3rd that it would increase tariffs on US goods by 25% (not yet announced for implementation)

In fact, in terms of impact, whether it is the US's 50 billion list or China's 50 billion list, the increased tariffs have been paid for by the world.

Chinese companies are not the only ones hit by the new tariffs, as semiconductors tend to be global.

Impact 1: Chips packaged in China may be subject to additional tariffs when they return to the United States

Because the global supply chain for chip manufacturing is very complex, many chip manufacturers perform assembly and testing work in China , but the value of this work only accounts for 10% of the value of the chip. The design and manufacturing of the chip constitute the majority of its value.

Jimmy Goodrich, vice president for policy at the Semiconductor Industry Association, has said chipmakers could be forced to pay tariffs on their products if they only complete a small portion of their work in China.

This part of the tariff will be added to the cost and paid by upstream manufacturers.

一些美国公司已不得不应对关税举措产生的新成本。据媒体报道，北卡罗莱纳州照明产品生产商Cree Inc.已表示，新关税将给公司带来显著经济损失。Cree位于北卡罗来纳州达勒姆的工厂生产发光二极管(LED)芯片，随后将这些芯片运送到该公司在中国惠州的一家工厂，在那里完成组装和封装。完成封装的LED芯片，一部分被运回美国，用于Cree及其客户生产的照明产品。

Now, those LED chips are facing a new 25% tariff when they are shipped back to the United States.

Since there are many chips produced in China in the first two lists that have come into effect in the United States, and their basic chips actually come from the United States, South Korea or Taiwan, the imposition of tariffs has actually affected domestic semiconductor companies in the United States. The Semiconductor Industry Association (SIA) expressed disappointment with this decision.

Reuters reported on August 8 that SIA President and CEO John Neuffer said in a statement that day: " We have made it clear to the government in the strongest terms that tariffs on semiconductors imported from China will harm American chipmakers, not China. And it will not help stop China's problems and' discriminatory trade practices. "

Tariffs cannot resolve the trade differences between the two countries, but they may be paid for by global industrial chain companies or people.

Impact 2: Tariffs enter into procurement costs, leading to rising component prices, which may eventually lead to rising prices on the consumer side

Josh Kallmer, executive vice president of policy at the Information Technology Industry Council, said the tariffs could lead to higher costs for consumers because semi-finished parts that are subject to a 25% tariff are generally included in the cost of purchase and eventually enter the production process of various electronic terminal products.

IC Insights president Bill McClean has also said that tariffs will lead to higher consumer prices, slower global business, and have a negative impact on all industries (including electronics).

In China's $16 billion counterattack against the United States, connector products are the first to be affected. The additional tariffs on these electronic components originating from the United States will be directly included in the procurement costs as price increases, and will be paid by electronic manufacturers.

Currently, the first batch of products originating from the United States that will be implemented by China on August 23 only involve connector products. However, judging from the trend, if the trade war continues to escalate, the electronic components products on the $60 billion list announced by the Chinese government on August 6 will not be spared from the tariff increase, and price increases are imminent.

According to the operating conditions currently released by China's electronics manufacturing industry, since the first half of this year, as costs have risen, the total profits and profit margins of China's electronics manufacturing companies have declined to varying degrees.

According to data disclosed on the website of the Ministry of Industry and Information Technology, in the first half of the year, the main business income of electronic information manufacturing industries above a certain scale increased by 8.1% year-on-year, but the total profit decreased by 2.3% year-on-year. The main business income profit margin was 4.27%, and the main business cost increased by 8.9% year-on-year .

The producer price index (PPI) of the electronic information manufacturing industry continued to decline.

Costs are rising, but factory prices are still low, and profits are severely compressed. This is the basic situation of China's electronics manufacturing industry. If the impact of tariffs is added, the situation will be even more serious, which may cause the price of finished products to rise.

Impact 3: To avoid risks, electronics manufacturers will more actively seek supply sources for competing products from other regions such as Europe and South Korea.

Chip companies and their suppliers in both China and the United States are generally opposed to the imposition of tariffs. Many worry that the end result will be higher prices for electronic products and components, which will lead to a sharp drop in sales, and that this will directly benefit competitors.

Overall, the list launched by China has taken into account the dependence of China's electronic manufacturing industry on foreign semiconductors. However, even for products on the list, prices may still rise due to tariffs, benefiting competing products in other regions.

For example, for the connector products that will be implemented on August 23, as well as the capacitors and resistors that are currently pending implementation, there is a high possibility that they will seek competing products from other regions.

International companies are also very likely to avoid the risks in Sino-US trade through various strategies.

Example: Intel makes its chips in six so-called fabs, three in the United States, one in Ireland, one in Israel, and one in China.

Intel’s U.S. revenue could be at risk. If Intel makes chips at its plants in Oregon, Arizona or New Mexico, sends them to China for low-level assembly, then brings them back to the U.S. and puts them into American-made devices, those chips would be hit by the tariffs.

However, Intel also has assembly and testing centers in Costa Rica, Malaysia and Vietnam. These chips from wafer fabs outside of China are likely to be exempted from tariffs if sold to U.S. companies.

Intel is very likely to change its production strategy to avoid taking too big a hit on the company.

Similarly, international giants such as Intel will also take measures to protect themselves and avoid being accidentally injured in this war.

In fact, with the globalization of semiconductor manufacturing and supply chains, there are no ultimate beneficiaries of the trade war between the two countries, but the impact it has caused will most likely be paid for by the entire industry chain.

This article only sorts out the network information from a partial perspective. You are welcome to participate in our discussion and share your views with us. (Special note: The information in this article is sorted from the Internet and does not represent Fuchang’s views.)

*The content of this article is compiled from: Office of the United States Trade Representative (USTR), China Ministry of Commerce website, China Ministry of Industry and Information Technology website, EET Taiwan, Techweb, International Electronic Business Information, EEWorld and other websites and media reports.

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