Unpredictable global trade policy fluctuations lead long-held norms to crumble, assumptions to evaporate, once-unassailable supply and demand approaches to become vulnerable
PASADENA, Calif.–(BUSINESS WIRE)–New Supplyframe Commodity IQ intelligence highlights a fundamental shift – from certainty to chaos – for the global electronics supply chain in Q1.
Standard seasonal buying patterns have gone haywire as imposed tariffs, threats of tariffs, and retaliatory tariffs have spurred an unseasonal electronic component sourcing surge in Q1. Whereas excess inventories once dominated supply-chain dynamics, new supply constraint concerns have arisen, with component demand increasing as buyers seek to avert existing and potential tariffs. The Commodity IQ Inventory Index for all electronic components dove 29 points between January and December, falling to less than half of the 2020 index baseline, signaling contraction and leaving the electronics industry vulnerable to potential shortages.
“Welcome to 2025, when frequently changing tariff policies and the continuing transformations wrought by AI have made commodity planning extremely challenging and left supply chain management organizations scrambling to keep pace,” said Supplyframe CEO and founder Steve Flagg.
Tariffs are disrupting trade and economics
The electronics supply chain, primarily governed by market forces, has been exposed to unpredictable fluctuations in global trade actions, worldwide macroeconomic headwinds, and resurfacing U.S. recessionary risks.
Tariff ambiguity is reflected in the U.S. Federal Reserve Bank’s Global Economic Policy Uncertainty Index, which spiked by 63% from October to November 2024 and rose by 3% and 14% month-on-month in January and February, respectively. Moreover, this year began with the index soaring 87% versus January 2024. For the United States, the monthly News-Based Economic Policy Uncertainty Index more than doubled in November 2024, and February data show an annual tripling of the index. Economists warn the new tariff regime will reignite inflation and slow U.S. economic growth. Following a higher-than-expected December U.S. inflation reading, the University of Michigan surveys showed consumer inflation expectations rose at the highest rate in nearly four years, while its Index of Consumer Sentiment fell by 2 points in January and, compared to January 2024, was down by over 7 points.
All of this points to business expectations for the year ahead, dropping on unease about federal government policies and casting doubt on the health of the U.S. manufacturing sector and the electronics supply chain.
Unseasonal electronics demand surged in Q1
Q1 typically represents the weakest quarter of the year for electronics demand, with activity slowing markedly compared to Q4. But that’s not how things played out earlier this year. The global Commodity IQ Demand Index rose sequentially by 9% in January and another 5% in February across all components worldwide. In the United States, the index shot up 31% month-over-month in January as buyers rushed to evade additional costs. For nearly all component commodities, month-over-month demand in the U.S. increased by double-digit percentages, with most climbing by 20% or more. With Mexico as an ever-more attractive electronics manufacturing services location facing 25% U.S. import tariffs ahead, its Commodity Demand Index ascended by 68% in January. Additionally, Brazil saw a 13% rise in the month, and across the three nations, sourcing for all electronic component commodities increased in January.
The Commodity IQ Demand Index grew 33% in the Americas. Component demand activity also rose in Europe through January. In particular, all key European markets witnessed demand growth—including Germany, which inflated by 22%; France by 26%; and Italy by nearly 50%. The component demand analytics from Supplyframe are supported by the Semiconductor Industry Association (SIA), which reported an 18% year-on-year chip sales increase for January.
The unseasonal demand surge is linked to tariff front-running, widespread among electronic components, and evident in supply chains for bellwether parts like capacitors and analog ICs.
Production pivots will take time and money
Some believe applying these tariffs will propel domestic production of electronic goods. However, it would take years and billions of dollars in investment for the U.S. to scale manufacturing sufficiently to satisfy the demand for core products such as printed circuit boards (PCBs). The recent emergence of fundamental questions about the viability of U.S. subsidies and the scope of contracts related to the CHIPS and Science Act foreshadows even longer timeframes for the United States to reach a greater than 12% share of worldwide semiconductor manufacturing by the decade’s end.
This delay would result in a lengthy period of inflated prices and supply constraints for original equipment manufacturers, electronic manufacturing services (EMS) providers, and sub-system vendors as they pivot from China-Plus-One to China-Zero electronics sourcing.
Among the electronic component demand by the 10 key countries (excluding Canada) influenced by current U.S. import tariff announcements and potential Chinese retaliatory export tariffs, Mexico remained first as the de-risking of manufacturing accelerated. Vietnam and Malaysia rose seven slots due to key nation shifts. Conversely, the electronic component demand ranking for the U.S. was halved last year compared to 2022.
Low inventories magnify the impact of demand
Spiking demand comes as electronics inventories are in short supply. The Commodity IQ Inventory Index encompassing all commodities Supplyframe tracks fell far below the baseline figure of 100 to 47 in January – a six-year low. Channel and component manufacturer stock declines included crystals, resonators, inductors, switches, power circuits, and amplifiers.
Electronics suppliers, particularly purveyors of multi-sourced parts, have cut capacity to throttle supply and maintain pricing. The increase in sales is translating into new demand for suppliers.
The growing prevalence of tariff-mitigation sourcing strategies also boosts demand and inevitably leads to redundant ordering, which limits availability and increases lead times.
“With circumstances changing rapidly, buyers face difficulty assessing the situation and developing response strategies,” said Flagg. “With demand rising and availability low, buyers could face challenges sourcing some parts. Under these conditions, buyers need to closely track demand and pricing conditions and be prepared to react quickly to further unexpected developments. This calls for businesses to shift left and employ new forms of intelligence.”
About Supplyframe
Supplyframe’s unmatched industry ecosystem, and pioneering Design-to-Source Intelligence (DSI) Solutions, are transforming how people and businesses design, source, market, and sell products across the global electronics value chain. Leveraging billions of continuous signals of design intent, demand, supply, and risk factors, Supplyframe’s DSI Platform is the world’s richest intelligence resource for the electronics industry. Over 12 million engineering and supply chain professionals worldwide engage with our SaaS solutions, search engines, and media properties to power rapid innovation and optimize in excess of $150 billion in annual direct materials spend. Supplyframe is headquartered in Pasadena, Calif., with offices in Austin, Belgrade, Grenoble, Oxford, San Francisco, Shanghai, and Shenzhen. To join the Supplyframe community, visit supplyframe.com and follow us on LinkedIn, X, Instagram, and YouTube.
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