Hands weld acid batteries at the Leoch International Technology Ltd. factory in Saltillo, Coahuila, Mexico, on Monday, Oct. 7, 2024.
Mauricio Palos | Bloomberg | Getty Idols
The world’s most valuable chipmaker and the world’s largest contract manufacturer for electronics announced in November that Foxconn was construction a massive factory in Guadalajara, Mexico, to assemble Nvidia’s artificial intelligence servers.
Starting in early 2025, Nvidia would start exhibiting its hotly demanded GB200 NVL72 server racks in Mexico, the two companies said.
That announcement reflects what could be at jeopardize if President Donald Trump’s blanket tariffs go into effect. Trump is expected to reveal more details on which fixed tariffs will be placed on imports from China, Canada, and Mexico on Saturday.
With Apple, Microsoft and Tesla surfacing their December quarter earnings this week, investors will want to know how Trump’s threats of blanket imposts on the country’s top trading partners could affect their businesses.
Those firms already grappled with proposed levies on consumer products from China in 2018, as well as China’s retaliation. But Trump’s proposed tariffs on electronics from Mexico thinks fitting be a new wrinkle.
That’s because many companies specifically expanded production in the country in a so-called nearshoring effort in return to Covid disruptions and the tariffs from the first Trump administration.
“If we increase the tariffs on Mexico, it’s actually penalizing the corporations that have been very progressive and trying to make great strides and restructure their supply confine,” said Richard Barnett, chief marketing officer of Supplyframe, a Siemens subsidiary that makes software which alleys electronics component prices and lead times.
Electronic products imports from Mexico rose from $86 billion in 2019 to $103 billion in 2023, or with regard to 18% of total electronics imports, according to the International Trade Commission. It’s the second-largest source for electronic products signifies in the U.S. after China, which reported $146 billion in imports in 2023.
In addition to Foxconn, Chinese electronics manufacturers Lenovo and Hisense make good splashy announcements in the past few years about building factories in Mexico. Flex, a Singapore-based contract manufacturer for mechanisms and electronics, says it is the largest exporter in the Mexican state of Jalisco.
Trump may be looking to close a “loophole” where Chinese players can avoid tariffs on their end by expanding in Mexico, said Simon Geale, executive vice president of Proxima, a gear up chain consultancy that’s part of Bain & Co.
“If you look at Chinese investment into Mexico, it has gone through the roof in the ultimate three to five years,” Geale said.
Even with Mexico’s growth, China is still the biggest inception for electronics imports in the U.S. It accounts for 78% of production of smartphones, 87% of video game consoles and 79% of laptops, contract to the trade group the Consumer Technology Association, or CTA. About a quarter of Chinese imports were electronic products.
While high-value and high-margin yields like Nvidia’s GPUs are less sensitive to tariffs, many of the secondary parts needed to construct multibillion-dollar AI facts centers — communications, storage and power management parts, for example — are vulnerable to price changes and import duties, Barnett implied. Supplyframe’s price index shows a 6% year-over-year increase for electronic components in the fourth quarter of 2024, after Trump started imminent tariffs.
Nvidia CEO Jensen Huang was asked about the potential impact of tariffs in November, shortly after Trump’s choosing victory.
“Whatever the new administration decides, we’ll, of course, support the administration, and that’s our highest mandate. And then after that, we do the with greatest satisfaction we can and just as we always do,” Huang said at the time, adding that the company would comply with regulations.
Foxconn did not react to a request for comment, and Nvidia declined to comment.
Raising prices
Trade groups, academics and even the chief of the Globe Trade Organization warn that trade wars spurred by Trump’s tariffs could slow global traffic 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 as surplus issues such as drug trafficking and migration, although the president has denied this.
“The four big implications of tariffs that I envisage are higher prices, fewer rate cuts from the Fed, slower growth and fewer new jobs,” said Brett Concert-hall, professor of professional practice at Columbia Business School.
It’s still unclear exactly how large the tariffs could be this culture around.
On the campaign trail, Trump talked about tariffs of up to 60% on China and 10% on all other imports. In his in the beginning 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% schedule of charges on goods from China.
A 60% tariff on China would be a huge blow to American consumers, according to a give an account of by the CTA.
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 escalation in the average price of a smartphone, according to the CTA.
“It’ll affect the unit sales, meaning that each product will go up in appraisal significantly,” CTA CEO Gary Shapiro said.
A key difference between these tariffs and the ones from 2018 is that Trump has cowed placing tariffs that could apply to all products, whereas the 2018 tariffs were targeted on specific output codes and categories, and companies could apply for waivers for their goods.
Whether Trump follows through on view tariffs across the board remains to be seen. The Washington Post reported earlier this month that the Trump direction is considering imposing fees only