The technology sector, with its intricate global supply chains, has been significantly impacted by the trade policies of the Trump administration, particularly the imposition of tariffs on various goods and components. These tariffs, aimed at reshaping international trade dynamics, have presented both challenges and opportunities for tech companies worldwide.

To better understand the specific impacts of these tariffs on the tech industry, including software, hardware, and critical components like semiconductors, we spoke to Joe Stephenson, Head of IT and Technology and Paul Nightingale at Shoosmiths.  

Joe has extensive experience of advising on all forms of IT and technology transactions across a range of sectors, but has particular expertise in advising on large-scale transformational outsourcings and projects in the automotive, retail and financial services sector. He is also a leading adviser on transactions involving Web3 and the Metaverse. Paul is a principal associate in the Firm’s Commercial group in Birmingham, advising clients on a range of commercial matters, with a focus on IT & technology transactions.

General impact and scope

How will the new US tariff policy affect technology firms operating internationally?

President Trump’s sweeping tariffs, the most radical of which came into effect on April 9, have had dramatic effects on the global economy, including significant consequences for tech firms. Although the severe “reciprocal” tariffs were paused barely 12 hours after the regime took effect, a baseline 10% tariff is still intact across all international jurisdictions until July, along with an eye-watering 145% tariff on Chinese imports.

The tariffs have disrupted the technology sector’s intricate supply chains, which often span multiple countries, and have affected both software and hardware industries, potentially increasing production costs across the board. US Big Tech companies such as Apple and Amazon seem particularly vulnerable, with price spikes likely for products that are dependent on Chinese manufacturing. We expect the tariffs to continue to have significant ramifications for tech firms involved in cross-border trade.

We often think of tariffs applying to physical goods. Is software, in its various forms (for example downloaded, SaaS), directly subject to these tariffs in the same way that physical products are? Are there any indirect ways these tariffs might have affected the software industry?

Technically, the tariffs only apply to physical goods for now, meaning software (particularly “as-a-Service”) is not directly affected. That said, the disruption to global supply chains, as well as to exchange rates and stock markets, is likely to substantially affect software suppliers, particularly tech companies who have come to rely on having free trade with countries targeted by the tariffs.

The technology sector relies heavily on the cross-border movement of hardware components and finished goods. How have the tariffs on imported hardware affected tech companies in terms of production costs, supply chain management, and pricing strategies for consumers? Could you give some specific examples of hardware categories that are particularly vulnerable to these tariffs?

Hardware manufacturing is especially susceptible to tariffs. The tariff pause on April 9 may alleviate some pressure (particularly as it spares critical territories in the global supply chain such as India, Taiwan and Vietnam), but the 145% tariffs on China remain a major obstacle.

UK and European markets face baseline tariffs of 10%, with the possibility of more severe “reciprocal” tariffs resuming on July 8. The baseline tariffs alone will have a material impact on UK and European hardware manufacturers’ ability to competitively trade in the US. Telecoms hardware providers such as Ericsson and Nokia have in recent years increased their US manufacturing operations, meaning they could be vulnerable to both tariffs on imported materials and to any retaliatory tariffs. Ericsson would appear to be most at risk, as it has become increasingly reliant on US operators for its business. That said, Ericsson’s investment in the US should mean any US-manufactured kit is exempt.

On the other hand, US-based hardware manufactures like HP, Dell, and Intel may in fact benefit from the tariffs, as other US tech companies who have traditionally used cheaper foreign-made equipment (such as cloud providers and chip manufacturers) turn to domestic alternatives.

Do you think the tariffs will influence decisions around where tech companies choose to manufacture their hardware? Will we see a greater push for reshoring or diversification of supply chains as a direct consequence of these tariff impositions?

Should they endure, the tariffs are certainly likely to influence tech companies’ manufacturing decisions. Increased costs from China will cause pain for companies that rely on Chinese imports, and the baseline tariffs on other global manufacturing hubs like India, Taiwan and South-East Asian countries will have further impacts. Any resumption of “reciprocal” tariffs will naturally compound the problem.

Reshoring or diversifying supply chains are potential workarounds that tech companies may be considering, especially to build resilience. We are already seeing some evidence of both, although these shifts may not solely be due to tariffs. That said, tech companies might be viewing the tariffs as a storm they need to weather, rather than a permanent realignment of the world economy, and may choose to wait before implementing significant changes.

The almost immediate pause this time (on April 9) may mean tech companies and investors treat future tariffs with scepticism, which could itself delay any drastic moves towards reshoring or supply chain diversification. In short, it remains to be seen what the real consequences of the tariffs will be.

Semiconductors

Semiconductors are the backbone of the modern technology industry. What unique challenges and implications will tariffs have on semiconductors posed for tech firms, considering the globalized and specialized nature of the semiconductor supply chain?  

Semiconductors seem to be exempt from tariffs for now, including those on Taiwan, a hugely important link in technology supply chains given it makes almost all the high-performance chips for US AI companies. The market turmoil at one point wiped out more than $200 billion of Nvidia’s value, which reportedly uses Taiwan’s TMSC as its sole supplier of AI chips. In line with this, the semiconductor exemptions seem designed to protect US chip manufacturers like Nvidia, and, in turn, the US AI sector.

There is, however, ambiguity over whether Graphic Processing Units (GPUs), key components of Nvidia’s chips, are actually exempt from the tariffs. Although GPUs use semiconductor technology, the tariff codes that cover “graphics cards” are missing from the exemptions list in Trump’s official order. The Consumer Technology Association argues that another exemption, on imports previously targeted in Trump’s aluminium-focused tariffs, may apply instead. US Customs considers GPUs “aluminum derivative products”. This may mean GPU imports remain subject only to the existing 25% tariffs on aluminium.

Trump has warned that separate tariffs focusing specifically on chips will start “very soon”, and US commerce secretary Howard Lutnick has stated there will be a special type of tariff to ensure that products containing semiconductors “get reshored”. Such tariffs could hit US companies who rely on overseas manufacturing of chips especially hard.

Semiconductors are also vulnerable to volatility in supply of rare earths, including dysprosium and tungsten, which China dominates. On April 4, responding to Trump’s tariffs, China restricted sales of seven rare earths to the US. Further rare earth restrictions, or even an embargo, by China could be catastrophic for technology companies globally.

Big Tech

Big Tech companies often have complex global operations, encompassing software services, hardware production, and international sales. How will the proposed US tariffs specifically affect these large players, considering their diverse business models and global reach?

Big Tech companies are particularly exposed to supply chain disruption, having grown and thrived on a complex web of global chains. The 90-day pause on tariffs for critical territories like India and Taiwan offers some relief, but it is only temporary for now, so Big Tech is not “out of the woods” yet. Big Tech could also be hit hard by the dramatic hike in the tariffs on China. Apple, for example, makes a majority of its products in China.

Even before the latest rise, analysts had suggested the tariffs could lead to US iPhone prices spiking by up to 40%. Apple may be breathing a sigh of relief after the April 11, announcement that smartphone imports will be excluded from the tariffs for 90 days, but there is still a great deal of uncertainty, not least about how semiconductors will be treated.

Amazon also appears exposed to China tariffs through its new “Haul” range (seemingly rolled out to compete with the likes of Temu and Shein), which relies heavily on low cost imports from China.

Retaliatory tariffs pose another risk to Big Tech. Although the spectre of retaliatory tariffs receded somewhat with the April 9 pause, the EU has previously indicated it “holds a lot of cards” to retaliate, including by targeting Big Tech through digital-services taxes. Although the US argues such taxes in Europe and elsewhere are discriminatory, Europe may now be less inclined to compromise.

France has suggested more strict regulation of Big Tech’s use of data as part of its own response to the tariffs. Ireland has been resisting these moves – not surprising given many Big Tech companies have their European bases there. The UK, on the other hand, has suggested it could reduce taxes on Big Tech as part of a deal to avoid tariffs.

Can you give us some examples of how the Trump policies have already had an impact on the business strategies or profitability of major US tech companies? What adjustments can they make to mitigate the negative effects?

Apple has announced it will be investing billions in new chip production facilities in Houston, Texas. Intel, TSMC and Micron are all making major investments in US-based semiconductor manufacturing, while Tesla and other automotive manufacturers are ramping up battery production domestically, apparently to reduce reliance on Chinese imports. Nvidia’s CEO, Jensen Huang, has also called bringing more manufacturing to the US a “priority”.

Data centres may present an interesting test case. We have seen high profile announcements from the Trump administration around building new AI infrastructure, including for OpenAI, in the US. But tariffs on imported steel, aluminium and electrical components are likely to push up the cost of key hardware equipment that goes into data centres. Cloud providers like Amazon, Microsoft and Google may have to choose between absorbing these costs or passing them on to their cloud customers in an already highly competitive field.

Investing in US based manufacturing is also an option, but realistically it would take a substantial amount of time before cloud hyperscalers could rely entirely on domestic manufacturing.

There are already signs of trouble. Microsoft has pulled back from a high profile $1 billion data centre expansion in Ohio. If data centre expansion cools in the US because of the tariffs, this could look like an own goal for a Trump administration that has been extolling the virtues of homegrown AI development.

Any predictions on what may happen next or advice for firms in these volatile times?

Tech companies may consider exploring their options around diversifying supply chains and reshoring operations. US-based vendors are already beginning to develop more electronics production in Mexico, for example, which has so far been spared the “reciprocal” tariffs. Other US companies have also announced substantial investments into the US, including to strengthen manufacturing capacity, since the election.

In practice, though, shifting production to North America could take years, so tech companies may prefer to bide their time for now, especially with potential administrative changes in 2028. Given the rapid developments over the past weeks, tech firms will certainly need to be nimble with how they navigate this uncertainty.

From a positive angle, the disruption could be an incubator for innovation. Tariffs create friction, and reducing friction has always been a driving force in the technology sector.