The escalating trade war between the U.S. and China stands to exacerbate an ongoing electronics component shortage that is already forcing technology companies to pay more for the parts they need.

Global demand for multilayer ceramic capacitors, or MLCCs — tiny components used in large volumes on circuit boards to filter noise and store and deliver an electrical charge — is far outstripping supply as devices from cars to kitchen appliances are connected to the internet. Two years into the ongoing shortage, some suppliers believe it could be another two years before market forces around MLCCs stabilize. Even then, prices are likely to remain elevated.

"From the component manufacturers themselves to the end customers … pretty much all of them universally are resigned to the fact that this shortage is going to extend well into 2020 and beyond," said Tobey Gonnerman, executive vice president of global trade at Fusion Worldwide, an independent distributor of electronic components, in an interview.

Unlike past shortages caused by natural disasters or damaged equipment, there is no quick fix on the horizon this time, Gonnerman said. "It's not like once this factory is back up and running or we rebuild something that got destroyed, then these issues will be solved. It's much more complex than that," he said.

That is because the MLCC shortage "developed organically," driven by a surge in demand, the Fusion executive said. "We think it's going to go on a long time," he added.

The number of MLCCs imported into the U.S. has remained fairly constant since the start of 2015, the year before industry experts say the shortage began, and has even ticked up in recent months, according to data from Panjiva Research, a division of S&P Global Inc. The monthly number of MLCCs imported for consumption, based on the number that passed through a customs port and then entered the U.S., averaged 8.36 billion from the start of 2015 through June 2018. In the first six months of 2018, the monthly average was 9.95 billion.

Per-Olof Loof, CEO of KEMET Corp. — a U.S.-based manufacturer and seller of passive electronic components, including MLCCs — recently said the industry is adding capacity in a "measured and reasonable manner." Speaking during an earnings conference call, Loof said that as this capacity begins to come online at the end of 2018 and into 2019, the gap between supply and demand might shrink but is not expected to disappear.

"The planned capacity increases the industry is installing will come close to the demand of today, but not the demand of tomorrow, and these capacity increases are lagging 18 months behind the demand," Loof said. If demand continues to grow at the same rate it has over the last few years, "We are looking at supply constraints for some time to come," the executive added.

In addition to KEMET, other MLCC manufacturers, including Murata Manufacturing Co. Ltd., Vishay Intertechnology Inc., TDK Corp. and AVX Corp., also have been adding capacity to try to keep up with demand.

Kamran Malek, vice president of marketing at Advanced MP Technology Inc., a global distributor of electronic components that also provides supply chain solutions, said that in his company's survey of customers and vendors, they have heard both 2019 and 2020. "We don't know where it is going to go. Based on our survey, 70% expect the current shortage to continue to at least to 2019 and possibly 2020," he said.

However long the shortage lasts, Dennis Zogbi, president and CEO of Paumanok Publications Inc., a market research and consulting firm focused on the passive electronic component industry, said prices will not go back down to pre-shortage levels. Historically, passive components such as MLCCs never represented more than 3% of the bill of materials for any product. Going forward, Zogbi said, "The days of passive components remaining 3% of the bill of materials are over. It's too important."

Further complicating matters is the escalating trade war between the U.S. and China. MLCCs were listed among the $34 billion in Chinese imports subject to the Trump administration's 25% tariff as of July 6. Since that first round of tariffs went into effect, President Donald Trump also plans to impose a 25% tariff on a further $16 billion of goods, effective Aug. 23, and he has proposed a 25% tariff against $200 billion of imports from China, the details of which are still being hammered out.

Gonnerman said the tariffs are salt on the wounds for manufacturers already facing higher prices for MLCCs. "If I am buying MLCCs already at 20x their normal cost and then there's a 25% tariff on top of it, it's kicking them when they're down," he said.

But he noted the impact is somewhat limited by the fact that the mass production of many devices that rely on MLCCs, such as Apple Inc.'s iPhone, takes place overseas. Finished smartphones thus far are not on the lists of items subject to tariffs, while components like capacitors, touch screens and batteries are.

Moreover, the plurality of MLCCs that are imported to the U.S. come from Japan. According to data from Panjiva, 42% of MLCC imports came from Japan in 2017, versus 24% from China.

Still, Gonnerman described the current tariffs on Chinese MLCCs as "just another wrinkle in an already exaggerated situation."

This is the second installment of a two-part series on the MLCC shortage. Part 1, focusing on the cause of the shortage and its impact, can be found here.