By Philip Stoten and Shawn DuBravac, following the March episode of the EMS & The Economist Podcast

Key Summary

• The EMS industry remains resilient as book-to-bill ratios stay strong, but some orders may be inflated because companies are pulling them forward ahead of tariff changes.
• Economic uncertainty is causing companies to hesitate on long term investments, and recession concerns are rising in the United States despite stable underlying economic activity.
• Constantly shifting tariff policies are disrupting supply chain planning in North America and pushing companies to reconsider where they invest.
• Relations between the United States and Europe are tense, with expectations that Europe may face new U.S. tariffs while also increasing defense spending.
• Technology, especially AI and new hardware, continues to drive strong demand and long term growth opportunities for electronics manufacturing.

The electronics manufacturing services (EMS) sector continues to show resilience despite facing significant headwinds from unpredictable trade policies and economic uncertainty. Industry metrics remain strong, with both EMS and PCB book-to-bill ratios showing positive performance, though questions linger about sustainability as global tensions escalate.

Book-to-Bill Ratios and Order Patterns

Recent surveys reveal interesting dynamics affecting the industry's performance metrics. "The book-to-bill both for EMS and PCB have been pretty strong," notes DuBravac, though he cautions these numbers might be artificially inflated due to companies "pulling forward orders" to get ahead of tariff implementation.

This pattern extends beyond electronics. "If you look at the import numbers in aggregate, we've had very strong import numbers that will weigh on the GDP in the first quarter," DuBravac explains. Despite these concerns, companies report positive activity. "The numbers have held up okay and look pretty strong. The companies I speak with are seeing a lot of activity and interest."

Economic Uncertainty Clouds Outlook

Market volatility and recession concerns have recently intensified, creating a challenging environment for long-term planning. "Any time you see uncertainty, that causes companies to pause, especially when it comes to bigger, longer-term, longer-horizon investments," DuBravac observes.

The US economy shows mixed signals. "Despite all of the uncertainty, the underlying economy is holding up okay," notes DuBravac, though he acknowledges that "the probability of a recession over the next 12 months has increased." Employment numbers remain within a comfortable range despite significant government layoffs, but the question remains whether these will eventually impact other sectors.

The apparent indifference from the White House regarding recession risks compounds these concerns. Statements suggesting "maybe there's some short-term pain that we're going to feel" have fueled market anxieties rather than calming them.

In Europe, sentiment is improving, with expectations shifting from last year's double-digit decline to potential single-digit growth in 2025. "In Europe, people are more positive about '25 than they were about '24," Stoten explains. "We saw that double-digit decline last year. We're looking at maybe a single-digit improvement this year, which I think everybody would be happy with."

Tariff Complications Disrupting Supply Chains

The most significant challenge facing manufacturers is the constantly shifting landscape of tariffs. Recent policy changes have created a complex web of regulations that manufacturers must navigate, particularly those operating across North American borders.

"It's really hard. If I'm a contract manufacturer in Mexico or just across the border in Toronto, I don't know what to think," Stoten observes. "We get a tariff that comes on, it's delayed for a month, we get a month down the line, it goes back on again and then we get exemptions for everything that was inside the USMCA. It's a big challenge in terms of planning their business."

The USMCA exemptions have introduced additional complications. "USMCA only covered about 50% of the imports that were coming through Mexico and even less coming through Canada," DuBravac explains. "Now there's this gray zone as well, what does this mean for things like Mexican beer or Canadian beer and what does it mean for computers or mobile phones or some other categories that now get kind of caught up in that gray area?"

Companies that were considering investments in these regions are now reconsidering their options, with some potentially looking at lower-cost US states instead.

Shifting US-Europe Relations

The evolving relationship between the US and Europe represents another significant variable. European countries have recently shown increased willingness to invest in defense, raising debt ceilings and adjusting borrowing rules.

"We've had this news that there's going to be more spending on defense. There's been debt ceilings raised in a lot of the European countries, including from the EU itself, as to what can be rules on what can be borrowed and if it's being borrowed for defense, that seems to be pretty limitless at the moment," notes Stoten.

However, industry observers anticipate that European countries could be the next target for US tariffs. "I think it's hard to imagine that the Trump administration doesn't turn more attention to Europe and look to impose tariffs," DuBravac predicts. He describes tariffs as "the negotiating leverage that the administration wants to use" and "the easy button" to achieve broader objectives.

The relationship between the US and Europe appears increasingly strained. "Europe's very sensitive to not just what the US says but the way it says it, and the way it's saying it now is somewhat different to, perhaps, the way it said things in the past," Stoten observes.

The potential Ukraine-Russia ceasefire adds another layer of complexity. It raises questions about whether European defense investments will continue. "Will a ceasefire remove some of the wind from that sail, or will Europeans continue to want to invest in defense?" DuBravac wonders.

Technology as the Growth Engine

Despite geopolitical complications, technological innovation continues to drive fundamental growth in the electronics sector. Significant developments in AI and new hardware are creating sustained demand for manufacturing services.

"There is a lot happening in technology right now, which can sometimes be overlooked because of all of the geopolitical dynamics," DuBravac points out. "I'm just back from MWC and you see tremendous appetite and growth in new devices and applications. We are seeing real progress in a lot of areas."

AI represents a "game-changing technology" with substantial implications—not just as a transformative technology but also as a major energy consumer, creating additional opportunities for electronic manufacturing.

Looking Ahead

As the industry prepares for upcoming gatherings like APEX, stakeholders will be closely monitoring sentiment indicators and reassessing growth projections. Success will likely depend on maintaining flexibility in an increasingly unpredictable environment.

Those able to adapt to shifting trade policies while capitalizing on technological opportunities—particularly in growth areas like AI and defense—may find ways to thrive despite the challenging landscape. The underlying technological transformations powering the industry continue unabated, providing a solid foundation despite the turbulent geopolitical environment.

Philip Stoten is a journalist and the host of the "EMS & The Economist" and “EMS@C-Level” podcasts. Shawn DuBravac is the Chief Economist at the IPC, an author, futurist, and renowned speaker. This article is based on a recent episode of the EMS & The Economist Podcast.

Video and audio versions are available at https://youtu.be/PbLg761mJe8 and https://www.buzzsprout.com/1251833/episodes/16778866 or wherever you get your podcast by searching ‘EMS@C-Level’.