Tag: tariffs

American startups preparing to launch a Kickstarter campaign are often worried about US tariffs on China-made products. Do you still manufacture in China, or try to do so in Mexico, or Vietnam, in order to reduce potential tariffs?

 

Do we manufacture in China, Mexico, or Vietnam?

Let’s consider a hardware project which includes electronic components, injection-molded parts, PCB assembly (PCBA) work, and final assembly. There are several possible hardware product launch supply chain options that could work:

1. Manufacture everything in China and accept the tariff risk.
2. Make most components in China, then do PCBA in Mexico and final assembly there, hoping Mexico would become the country of origin.
3. Do PCBA in Mexico, ship the boards back to China, and complete final assembly there.
4. Do PCBA in Vietnam, then final assembly in China, hoping Vietnam might provide a better country of origin ruling than China.

On paper, these options can look attractive. A lower tariff rate can seem like a direct improvement to COGS for hardware products. If the tariff difference is 20%, 25%, or more, it is natural to ask whether the China manufacturing supply chain should be redesigned before launch.

But for a new hardware product, as we’ll explain, that is often the wrong place to optimize first.

China Still Often Has the Best Cost, Quality, and Speed Balance

When all is said and done, from what a variety of companies have found, electronic products made in volume are made at the best combination of cost, quality, and speed in China.

This is still true in many cases, especially for custom electronic product manufacturing that needs plastic parts, electronic components, tooling, fixtures, process setup, testing, and fast engineering feedback.

China is not always the cheapest option for every product. But for the first few production batches, electronics assembly in China often offers the best practical balance. The supplier base is deep. Component sourcing is easier. Tooling, molding, machining, PCB assembly, final assembly, packaging, and rework can usually be coordinated faster.

When something goes wrong, the people who need to solve the problem are often closer to each other.

That matters a lot during the NPI process for new hardware products.

NPI Outside China Adds Lead Time

In our experience, trying to do NPI outside of China will usually result in much longer lead times.

This is easy to underestimate. A spreadsheet can compare tariff percentages. It cannot easily show the impact of slower communication, longer transit times, more handoffs, less mature suppliers, or delays caused by moving semi-finished goods between countries.

A first production run is already risky. The product is new. The process is new. The inspection criteria may still need refinement. The supplier may find issues that were not visible at the prototype stage. Packaging might need changes. Test fixtures may not work as expected.

Adding several countries into that situation usually increases the number of failure points as well as the time to remedy the issues.

Supply Chain Complexity Is Dangerous in the First Batches

Making the supply chain more complex than it should, involving several countries for custom-designed parts, is a no-no for the first few batches.

That is probably the key lesson.

A tariff mitigation strategy may look good on paper, but it can create serious supply chain complexity. A China vs Mexico manufacturing comparison, or a Vietnam manufacturing alternative, should not only look at import duties. It should also look at engineering support, process control, quality follow-up, transport delays, and the maturity of the suppliers involved.

For established products, a multi-country strategy can make sense. Once a product has gone through several mass production batches, the design is more stable. The production process is better understood. Quality risks are lower. Volumes are more predictable.

At that point, moving some work to another country to reduce tariff exposure, lower cost, or improve resilience may be worth exploring. That is a very different decision from trying to engineer a tariff-optimized supply chain for the first production run.

What if that first run comes out 6 months later and at a lower quality level – will you be glad it came out 10% cheaper overall?

The Practical Advice: Keep the First Production Run Simple

For the first production batch, keep the supply chain as simple as possible.

If most of the components, tooling, and assembly know-how are in China, it may be better to manufacture in China and manage the tariff risk, rather than creating a complex China-Mexico-Vietnam-China flow before the product and process are mature.

Then, once the product is proven, the process is stable, and order volumes justify the extra work, revisit the supply chain design.

Tariff optimization is important. But in early-stage hardware manufacturing, reducing complexity is often more valuable than chasing the lowest theoretical duty rate.