Optical Device Industry Under the Shadow of Trade War

optical device trade war

The most discussed topic in the industry recently is undoubtedly the impact of the trade war and its tariff policies on the rapid growth of shipments of artificial intelligence devices and optical components.

Current situation of tariffs on optical devices

At present, the import of optical modules into the United States requires a 10% basic tariff, but according to Executive Order No. 14257, two exemptions have been obtained: one is the exemption from the 245% ad valorem tariff on Chinese goods, and the other is that tariffs from other countries will be exempted after a 90 day grace period. The classification of goods covered by this administrative order includes “devices used for receiving, converting, transmitting, or reproducing voice, image, and other data, including switching routing devices” under item 8517.62 of the Harmonized Tariff Schedule, of which subclass 8517.62.0090 was specifically exempted in 2019 for pluggable optical components.

Industry sentiment survey

Cignal AI recently conducted an anonymous survey of 10 industry executives (most companies have not yet formed an official stance), providing two basic prediction options and allowing alternative solutions to be proposed:
Option 1: The AI core infrastructure (GPU, CPU, switches, etc.) will be less affected by tariffs, and the procurement volume will proceed according to the original plan. Although the price of optical components has increased, the shipment volume has been maintained.
Option 2: All equipment costs increase. Capital expenditures remain stable, but the procurement volume of optical components and other equipment will decrease.

Core findings:

The respondents have divergent views but generally hold a pessimistic attitude towards sustained growth. The biggest consensus is that policy uncertainty has a more destructive impact on supply chain planning compared to tariffs themselves. Most expectations are that procurement will slow down in the short term, waiting for policy clarity in future quarters. The final direction depends on the speed of uncertainty elimination.
Option 2 dominates: 70% of respondents prefer this option. It is believed that the increase in capital expenditure is not sufficient to digest tariff pressure, and the procurement volume will inevitably decrease. The impact time window is concentrated within 1-2 quarters.
Cautious optimists: 30% believe that if tariff exemptions are obtained in the future, AI deployment can still proceed as planned, and capital expenditures only need to be moderately increased. The urgency of the AI competition will not change.
The third typr of pessimistic expectation: A few people warn that if tariffs are prolonged or upgraded, large-scale cloud service providers may significantly cut expenses to preserve cash flow, triggering a broader market recession. Although this viewpoint is a minority, it is worth paying attention to.
Expectation of manufacturing transfer: Most believe that optical device manufacturers will transfer their production capacity to other regions, but this process will take time. In the short term, it may lead to inventory backlog, and there will be fluctuations in the supply chain in the next year.
Regional fragmentation trend: Some respondents predict that regions such as the European Union may promote localized manufacturing, and global supply chains may become fragmented.
Economic recession scenario: A respondent pointed out that if a comprehensive economic recession occurs, telecommunications operators will be the first to bear the brunt. Large scale enterprises with ample cash flow may maintain expenses, leaving some room for optimism in the market.
Cignal AI stated that due to the current uncertainty, it will not adjust the shipment forecast for optical modules at this time.