LDN - Business

Some U.S. electronics factories start layoffs as trade tariffs hit

[October 23, 2019] By Timothy Aeppel

(Reuters) - U.S. electronics factories are investing less and slowing hiring or laying off workers in some cases due to the rising costs of trade tariffs, according to an industry survey set for release on Wednesday.

The IPC, a global electronic industries trade association, found that nearly a third of all the dollar value of what its members with U.S. operations import has been hit by increased costs from the protracted U.S.-China trade war.

The electronics industry has increasingly sourced raw materials, components and manufacturing equipment from Chinese factories. They are then assembled into final products, ranging from control panels for tractors to medical imaging machines, in factories closer to customers, including in the United States.

The survey from the IPC, based in Bannockburn, Illinois, found that one in five companies with U.S. operations said they were investing less in the United States due to the new tariffs. About 13% said they were cutting hiring or reducing headcount.

“It seems clear that loss of profitability is impacting the ability of these companies to invest in the U.S.,” said Shawn DuBravac, IPC’s chief economist.

DuBravac said many association firms had indicated they were leaving China, but “it doesn’t appear from our results that a lot of that is flowing back to the U.S.” Rather, the focus is on moving to other low-cost countries, including Vietnam and Malaysia, he said.

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Containers are seen at the Yangshan Deep Water Port in Shanghai, China August 6, 2019. REUTERS/Aly Song/File Photo

Brad Heath, chief executive of VirTex, an Austin, Texas-based manufacturer, said he paid over $200,000 in tariffs for Chinese electronics parts last month on behalf of his clients.

VirTex is a contract manufacturer, which means it assembles parts into sub-assemblies for bigger companies. It can usually pass costs through to final customers, Heath said.

“But our customers don’t have that ability,” he added. “So someone is suffering margin erosion.”

The IPC survey found many companies were struggling to pass along tariff costs, with more than a third saying they could not increase their prices to compensate for them.

Nearly 70% said tariffs had eroded their profit margins, according to the survey, which also said just over half of companies were now sourcing from countries outside China to avoid tariffs.

(Reporting by Timothy Aeppel; Editing by Tom Brown)

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