Caveat Lector
Mike Buetow
A Taxing Idea

t was 16 years ago this month when a group of Chicago-area printed circuit board manufacturers stuck a flag in the ground and declared themselves the new vanguard of the American industry. At an early meeting, leaders called free trade “the seed of our own destruction,” and railed against the devastation of the domestic fab industry.

They called on public officials to fight China on currency manipulation and tariffs, and to enact trade policy that better fit the current state of the domestic market. Nothing less than the long-term security of the US was at stake.

The group had a point: Domestic PCB production had fallen by half in three years to $5 billion. Not only was no recovery in sight, but in some cases the deck seemed stacked against them. For instance, raw materials imported to the US from Asia were assessed tariffs, but assembled PCBs were not. Ouch.

(As an aside, just 18 months earlier, a certain editor whose face adorns this page wrote in this space, “How many times have we called the demise of the American PCB industry before, only to be proved wrong?” Double ouch.)

At that time, several regional PCB associations remained intact, if bending under pressure to survive. The USPCA, as the nascent group called itself, grew to roughly 70 members before collapsing, reportedly due to internal friction over direction.

Last summer, a group of Chicago-area printed circuit board manufacturers rallied public officials to take on China. Their platform sounded eerily familiar: They called on public officials to fight China on currency manipulation and tariffs, and to enact trade policy that better fit the current state of the domestic market.

The effort not only sounded much like a repeat of the USPCA, it even included a few of the same players. Shalli Kumar, founder of AVG Group, which was once a large PCB manufacturer, coordinated the session. In an editorial released about the same time, Kumar wrote, “The US manufacturing renaissance we seek and that our national security requires will not take place without a sustained long-term tariff plan that would encourage American businesses, large and small, to invest in new plants and equipment to make these products in the United States once again. What has been stolen from our country cannot be brought back by free trade.”

We all know what’s happened since.

Another longtime Chicago-area PCB shop owner bent my ear last month over the possibility of reviving or creating an association dedicated to US PCB interests. He suggested setting up a tariff structure that would incentivize onshore procurement. His concept: Orders placed at US plants would be issued credits to offset tariffs paid.

It would work like this: Say you purchase $10 million worth of PCBs offshore and the tariff is 25%. If you give a portion of that spend to domestic plants instead – for instance, $1 million goes to TTM in California – you would get $1 million worth of credit toward tariffs on offshore purchases.

His hypothesis: If companies were to move 10% of what they were buying offshore to domestic plants, their costs wouldn’t rise much. But from that swing in revenues, an entire ecosystem would be created. Suppliers would come back. The industry would be healthier.

“We don’t need to get back to $10 billion. But $5 billion (would be a big improvement),” he said.

Many, many details would obviously have to be worked out for such a plan to be enacted. How is the value of credits on purchases moved onshore from offshore accounted for in the wake of normal demand swings, for instance?

Most parties we’ve spoken with agree that tariffs, over time, are more hinderance than help. The feeling here is the tariffs will eventually go away. But even after that fire has been put out, we must still confront the absence of a unified, consensus strategy for the US industry.

What’s more certain is that US OEMs and EMS companies will need incentives to buy local. Their offshore supply chains are intact. Adding heavy taxes to core durables will just raise costs for consumers and eventually slow demand. That’s counterproductive. I think it’s a lesson that’s been learned more than once.

Could a new US trade group fill the gap? I think that lesson’s been learned too.

Mike Buetow

P.S. For more on how suppliers are handling the tariff situation, see our interview with Jack Pattie of Ventec USA.