The new US tariffs, if they are implemented in full, will likely lead to higher prices for data centre components and materials. In the worst case, they will cost the US its lead in the AI race. The new tariffs could lead to investment being suspended or cancelled, The Register reports, citing research from ABI Research.
In the paper, “Navigating Tariff Turbulence In The Technology Sector,” the agency points out that the effects of tariffs imposed by US President Donald Trump are changing the AI market in unpredictable ways as businesses rethink supply chains and investment policies.
For example, companies importing finished goods face a basic tariff of 10%, while goods from China are subject to a tariff of 145%, even though many high-tech products and/or their components are purchased from China. While this strategy is intended to strengthen domestic U.S. manufacturing, it actually creates difficulties for many industries, including the IT sector, which rely heavily on external supplies.
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Thus, even building a data center in the United States will become more expensive due to rising prices for steel, aluminum, and copper, as well as electrical equipment imported from abroad. This will hit small players with limited resources the hardest. But large businesses will also have to significantly increase capital expenditures, which will affect competitiveness. Higher costs for servers, network equipment, and data storage systems will negatively affect the cost of equipment for data center operators. As a result, companies will have to reduce profitability or lose their customer base.
More broadly, tariffs could change supply chain dynamics, prompting U.S. carriers to diversify their component supply chains and perhaps invest in local manufacturing to reduce costs in the future. While the U.S. would be more self-sufficient, global supply chains would suffer as a result. However, some companies are already trying to get into the new U.S. playbook, with Taiwanese server makers investing in U.S. manufacturing.
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While semiconductors are excluded from the latest round of tariffs, the broader IT industry will still suffer as infrastructure comes under pressure from all sides, ABI said. Experts have previously warned that volatile US tariffs are unlikely to help the data centre market, with the industry bracing for a sharp rise in server prices. The situation could be exacerbated by buyers stocking up on key components before the tariffs come into effect, according to data from suppliers such as Samsung and SK Hynix.
HPE sources components and materials for its AI servers from Mexico, China, Taiwan, India, Singapore, Malaysia and other countries, and also does business in the Czech Republic. The introduction of duties will significantly increase the cost of the company’s servers. HPE itself is already predicting a decrease in revenue in the second quarter due to the new tariffs. Companies like Supermicro, which emphasize their “Made in the USA” policy, are not immune to the shocks. They still rely heavily on foreign components. The company has already announced that its future quarterly results will likely lag significantly behind previously forecasted ones.
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In other words, US companies will either see higher costs and lower profits, or will have to raise prices for customers. At the same time, international buyers will be able to buy more competitive products from Lenovo or Huawei. This is expected to slow down the pace of data center expansion and reduce demand for key components, especially high-performance chips.
Companies like TSMC and Intel have committed to investing heavily in U.S. semiconductor manufacturing, but the new tariffs put their plans at risk because it will also be unprofitable to build manufacturing facilities, including factories based on ASML machines. ABI suggests that in such circumstances, many projects may be frozen or cancelled in the hope of waiting for a time when investments begin to pay off again. Theoretically, one solution could be to reinvest the tariffs into domestic production, but experts consider this scenario “unlikely.”
What is likely is a long-term drain on AI infrastructure investment and a slowdown in server production, a reduction in data center construction, and perhaps even the loss of the US’s leading position in the global AI market. Rising production costs will impact IT budgets, and companies will have to reconsider their AI development plans. Expensive and “non-essential” AI projects may be put on hold or cancelled, slowing down AI adoption in the short term due to financial constraints. Simply put, Trump’s policies to restore American manufacturing could result in the US losing its AI leadership to China.