On May 7, I hosted a panel discussion with four experts from BMO Capital Markets about how the current trade environment is affecting the technology industry.  

Scott Anderson, Chief U.S. Economist, Bret Anderson, Director, Global Markets, Sheralyn Mills, Managing Director, FX Structuring, and Nicholas Ray, Vice President of Supply Chain Finance, presented their insights on how developments are influence supply chains, cross-border trade and operational planning in the tech sector. They also offered strategic considerations for navigating the ongoing uncertainty. 

A summary of our discussion follows. 

For the manufacturing segment of the tech industry—including computers, mobile devices and semiconductors—Scott Anderson said companies are bracing for a COVID-like shock to global supply chains, and even more disruption than during the 2018 trade war with China.  

“If you’re a tech manufacturer, you can expect increasing costs for your electronic components, especially if you’re sourcing from Asia,” he said. “Tech manufacturers are expecting disrupted supply chains and squeezed profit margins at least for a time.” 

Scott Anderson also noted that the window for reaching a deal to reduce the 145% tariffs on imports from China is closing quickly. “If you look at what’s happening with port activity in Los Angeles and Long Beach, volumes are down about 35% to 40% already. We have maybe 30 days to get an agreement in place before we start marking down our growth forecast again and raising our expectations around shortages on retail shelves and inflation.” 

As for the nonmanufacturing side of the industry, Scott Anderson pointed out that because hardware is the backbone of software, IT services and e-commerce, “there’s nowhere to hide from these tariffs.”  

On a positive note, Scott Anderson said there could be some upside for small and midsize U.S.-based component manufacturers as orders shift to domestic suppliers. And with semiconductor demand remaining strong, there are opportunities to build or expand production with the CHIPs and Science Act of 2022. 

“There’s opportunities for growth,” he said. “Nimble companies that can pivot quickly and adjust their strategies will be well-positioned to take advantage of them.” 

Given the international nature of the tech supply chain, tariffs are deeply intertwined with global trade. Ray said some buyers are taking more proactive measures to renegotiate their supplier contracts. But some are taking different approaches to managing the situation. 

“A number of buyers using suppliers located in high-tariffed countries are delaying shipment of invoiced goods,” Ray said. “These buyers are essentially playing a waiting game in hopes that tariffs decrease or are rolled back entirely. On the flip side, a number of buyers in the U.S. that are taking shipments are repricing products differently. They’re passing tariff costs on higher-priced, high-demand goods, while the lower-end, lower-demand goods are not seeing that price impact.” 

Ray said how companies react can depend on the goods in question. “Semiconductor demand is extremely high, so it’s critical now that semiconductor companies take some proactive measures to ensure that the global supply chain network’s liquidity is safeguarded.” 

The widespread tariffs have impacted the Federal Reserve’s interest rate strategy in the short term. That’s why Bret Anderson said having a hedging strategy in place is a best practice for companies that have or expect to have interest rate exposure. That strategy could include determining the most appropriate fixed versus floating rate composition, using derivative products or hedging cross-border rate risk. Many companies are heeding the call. 

“BMO’s interest rates team is seeing a significant increase in activity,” Bret Anderson said. “We’re seeing clients booking hedges for the first time. We’re seeing clients increasing their fixed percentage from a global perspective, and we’re seeing clients that are extending the duration of existing hedges.” 

As Mills pointed out, because the shifting tariff policy has created volatility in global current markets, the companies that have a well-defined foreign exchange (FX) hedging policy will be best positioned to react to changing market developments.  

“Tariffs have a significant impact on cash flows, margins and supply chains, which all creates unforeseen currency risk,” Mills said. She added that it’s important to make sure any FX hedging strategy covers your company’s main objectives. 

Mills noted that your hedge toolkit should also include post-hedge analysis to determine if the tactics are you’re meeting your objectives. That can be a challenge given the fluid nature of the current tariff environment, but Mills pointed to some best practices. 

“We’ve seen clients attach less certainty to their forecasting cash flows, therefore choosing shorter durations for hedging, for example,” she said. “Have a sound hedge policy in place to begin with, then take a proactive approach [to making adjustments when necessary].”