How will Trump’s tariffs affect tech’s sub-sectors?
Hardware, AI and fintech are in the firing line
Joe Stephenson and Paul Nightingale of Shoosmiths examine how Trump’s latest tariffs will affect the tech sector’s diverse parts.
President Donald Trump’s tariffs have had dramatic effects on the global economy. Although the pause on ‘reciprocal’ tariffs, little more than 12 hours after the regime took effect, has provided some immediate relief, the baseline 10% tariff remains in place. Together with tariffs on China (which escaped the pause) and general uncertainty in the markets, the tariffs continue to have significant ramifications for the technology sector.
Software
The tariffs only apply to physical goods for now, meaning software (particularly "as-a-Service") is not directly affected. However, the disruption to global supply chains, exchange rates and stock markets is likely to have substantial effects on software suppliers, particularly tech companies dependent on free trade with targeted countries.
Hardware
Hardware manufacturing is especially vulnerable. The 9th April pause reduces immediate pressure, but many tech companies may find this counterbalanced by tariffs on China, which now stand at a whopping 125%.
Apple, for example, manufactures most of its products in China, and even before the latest hike analysts were predicting spikes in the price of US iPhones of 40%. Amazon’s “Haul” range, which relies on low-cost imports from China, may also face challenges.
UK and European markets are subject to baseline tariffs of 10%, with more severe tariffs potentially restarting after 90 days. Even the baseline tariff could materially affect UK and European hardware manufacturers’ ability to trade in the US. Telecoms hardware providers like Ericsson and Nokia, increasingly reliant on US operators, may be especially exposed.
In a move apparently designed to protect US chip manufacturers (and, in turn, the AI sector), semiconductors are exempt from tariffs for now. However, they are vulnerable to supply chain disruption and susceptible to volatility in rare earths supply, of which China has a huge share.
There is also ambiguity over whether GPUs (a crucial component for AI development) are caught. Although they use semiconductor technology, they are missing from the list of exemptions. The Consumer Technology Association, however, argues that the exemption on products targeted by existing tariffs should mean GPUs remain subject only to the aluminium tariffs already in place.
Separately, Trump has hinted that specific chip-focused tariffs will arrive soon.
Artificial intelligence
Datacentre development in the US could be stymied, especially if the ‘reciprocal’ tariffs restart. Necessary equipment is likely to become more expensive. This could undermine the Trump administration’s plans for investment in US datacentre infrastructure to power AI. Microsoft and Amazon have already indicated a more cautious approach to datacentre expansion.
Amid the ‘tit-for-tat’ tariff regimes from the US and China, other countries with well-established AI sectors, notably the UK, France and Germany, could attract investment, and may look to increase their own sovereign AI compute and hardware capacity.
Other sub-sectors
The localised nature of the telecoms market should insulate it from the worst effects of the tariffs. Despite the widespread market issues, stocks in global telecoms operators appear unaffected. However, reduced consumer spending due to higher prices may affect telecoms providers and the tech sector more broadly. Fintech companies reliant on transaction fees from card purchases, or on “Buy-Now, Pay-Later” models, could be affected.
Retaliatory tariffs
The spectre of retaliatory tariffs receded with the 9th April pause, but the EU has previously indicated it could target US Big Tech companies through digital-services taxes. Although the US has called such taxes discriminatory, Europe may now be less inclined to compromise. France has proposed stricter regulation of Big Tech’s use of data as a response to the tariffs.
The UK, on the other hand, has suggested reducing taxes on Big Tech as part of a deal to avoid tariffs. Meanwhile, Trump has suggested reducing tariffs against China if it agrees to a sale of TikTok’s US operations.
What lies ahead?
While the tariffs undoubtedly pose risks for the tech sector, they may also present opportunities. The need for innovation is keener than ever, and tech companies nimble enough to navigate the uncertainty could benefit. Expect more updates from Shoosmiths as the situation evolves.
Joe Stephenson is head of Shoosmiths’ Technology sector group, and Paul Nightingale is principal associate in the firm’s Commercial Group in Birmingham