Workers weld acid batteries at the Leoch International Technology Ltd. factory in Saltillo, Coahuila, Mexico, on Monday, Oct. 7, 2024. The world’s most valuable chipmaker and the world’s largest contract manufacturer for electronics, Foxconn, is building a massive factory in Guadalajara, Mexico, to assemble Nvidia’s artificial intelligence servers. The announcement reflects what could be at risk if President Donald Trump’s blanket tariffs go into effect. Trump is expected to reveal more details on which specific tariffs will be placed on imports from China, Canada, and Mexico on Saturday.
As Apple, Microsoft, and Tesla report their December quarter earnings this week, investors will want to know how Trump’s threats of blanket tariffs on the country’s top trading partners could affect their businesses. Those firms already grappled with proposed tariffs on consumer products from China in 2018, as well as China’s retaliation.
Trump’s proposed tariffs on electronics from Mexico would be a new wrinkle. Many companies specifically expanded production in the country in a so-called nearshoring effort in response to Covid disruptions and the tariffs from the first Trump administration.
Electronic products imports from Mexico rose from $86 billion in 2019 to $103 billion in 2023, or about 18% of total electronics imports, according to the International Trade Commission. It is the second-largest source for electronic products imports in the U.S. after China, which reported $146 billion in imports in 2023.
In addition to Foxconn, Chinese electronics manufacturers Lenovo and Hisense made splashy announcements in the past few years about building factories in Mexico. Flex, a Singapore-based contract manufacturer for gadgets and electronics, says it is the largest exporter in the Mexican state of Jalisco.
Trump may be looking to close a “loophole” where Chinese companies can avoid tariffs on their end by expanding in Mexico, said Simon Geale, executive vice president of Proxima, a supply chain consultancy.
However, high-value and high-margin products like Nvidia’s GPUs are less sensitive to tariffs, but many of the secondary parts needed to construct multibillion-dollar AI data centers are vulnerable to price changes and import duties, according to Richard Barnett, chief marketing officer of Supplyframe.
Raising prices
Trade groups, academics, and even the chief of the World Trade Organization warn that trade wars spurred by Trump’s tariffs could slow global commerce and raise prices for consumers. Analysts have said the Trump administration may be looking at the tariffs as a way to negotiate with other countries over issues such as drug trafficking and migration, although the president has denied this.
The four big implications of tariffs that I foresee are higher prices, fewer rate cuts from the Fed, slower growth, and fewer new jobs, said Brett House, professor of professional practice at Columbia Business School.
It’s still unclear exactly how large the tariffs could be this time around. The Trump administration may be looking at tariffs of up to 60% on China and 10% on all other imports. On the campaign trail, Trump talked about tariffs of up to 60% on China and 10% on all other imports. In his first week in office, Trump has backed off from the largest duties, discussing a 10% tariff across the board from Mexico and Canada and a 25% tariff on goods from China.
A 60% tariff on China would be a huge blow to American consumers, according to a report by the Consumer Technology Association. Laptop and tablet prices might increase by 45%, video game consoles by as much as 40%, and smartphones by as much as 26%. That’s a $213 increase in the average price of a smartphone.
It’ll affect the unit sales, meaning that each product will go up in price significantly, said Consumer Technology Association CEO Gary Shapiro.