How Trump's tariffs could pinch the tech sector

The tech industry is set to feel the pinch as the Trump administration levies new tariffs against key U.S. trading partners.

Tech stocks dropped 3.7 percent on Monday, as President Trump indicated that he would not back down from his plans to implement import taxes on products from Canada, Mexico and China. They began to climb back up on Tuesday after an initial dip.

The U.S. imposed 25 percent tariffs against both Canada and Mexico on Tuesday, as well as an additional 10 percent tariff against China. Beijing faced an initial 10 percent tariff last month, while both Canada and Mexico were able to secure a one-month delay.

While markets rebounded Wednesday after Trump announced he would reel in some of his recent tariffs, the tech sector is still facing several threats.

The tariffs throw a wrench in the flow of consumer electronics, the vast majority of which are made in China, said Chris Rogers, head of supply chain research at S&P Global Market Intelligence. Mexico is also a key supplier of consumer electronics for the U.S.

“You're not going to be able overnight, if you're making your electronics in China, to go buy them somewhere else or go make them somewhere else,” Rogers told The Hill. “That's going to take quite a long time to do.”

“You're left with either you take a hit to your profits, or you try and share that burden with your supplier, which is where you start to see impact on electronic components firms, or if you put your prices up ... say you pass it through to your consumers, you run the risk that that hurts their ability to buy your product,” he added.

As all three countries prepare and enact retaliatory tariffs, U.S. exports in the tech sector are also likely to take a hit. Canada plans to respond with 25 percent tariffs. Mexican President Claudia Sheinbaum has said she will announce retaliatory tariffs Sunday.

China enacted tariffs between 10 and 15 percent on a range of American agricultural products. While Beijing has thus far not taken aim at the tech sector with retaliatory tariffs, it has targeted U.S. tech firms, like Google, with antitrust investigations.

“These tariffs risk disrupting global supply chains for high-tech goods, including automobiles, electronics, and medical devices, increasing costs for American consumers and hindering U.S. economic growth,” Stephen Ezell, vice president of global innovation policy at the Information Technology and Innovation Foundation, said in a statement.

Trump’s decision to move forward with new tariffs also raises the prospect that he could follow through on other threats, including tariffs on semiconductors.

The president said last month he plans to levy tariffs on imports of automobiles, pharmaceuticals and semiconductors starting in early April. On semiconductors, he suggested that import taxes would be “25 percent and higher, and it’ll go very substantially higher over the course of a year.”

“The president's been talking about doing this for a while, but there's been a degree of, well, taking him seriously but not literally,” Rogers said, noting that Tuesday’s decision may change that calculus.

It may also shift how tech firms approach the Trump administration as they seek exemptions, Rogers suggested. He pointed to Apple, which announced plans last week to invest $500 billion in the U.S. but has not yet received any tariff exemptions.

The iPhone maker was able to secure exemptions from tariffs on Chinese products in Trump’s first administration.

“I think the concern this time around is that doing things that would normally curry favor with the president aren't necessarily working,” Rogers said.

The tariffs are creating “a lot of turbulence” for the market, said Wedbush Securities analyst Dan Ives. However, he suggested that “the bark is going to be worse than the bite.”

“I think if you look at 2018-2019 in terms of Trump’s first term as a barometer, I mean tech stock sold off significantly during that period, ultimately to have a huge rebound. But that's why this is such a jittery period for tech moves,” he told The Hill.

Canada and Mexico may still yet find an “off-ramp” from their tariffs, said Owen Tedford, a senior research analyst at Beacon Policy Advisors.

“As much turmoil as there is at the moment between the U.S., Canada and Mexico, there's some sense at least, or maybe I'm holding out hope, that there will be some sort of off-ramp that develops,” Tedford said. “I'm not sure that there's as clean of an off-ramp for China.”

Commerce Secretary Howard Lutnick revealed late Tuesday that the president was discussing a potential compromise with Canadian and Mexican officials.

“I think he’s going to work something out with them,” Lutnick told Fox Business host and former Trump administration economic official Larry Kudlow.

Tech stocks have been on a downward trajectory in recent weeks, even before Trump’s tariffs sparked fears of a trade war. The S&P 500 tech sector index is down nearly 10 percent since mid-February. Since Trump took office in January, the tech sector has fallen 7.8 percent.

Nvidia, whose advanced chips are helping power the artificial intelligence (AI) boom, is down more than 17 percent since Trump’s inauguration.

Tedford suggested that the recent dip in tech stocks may also come as the hype surrounding AI cools. Excitement about AI has been fueling massive gains in the tech sector over the past two years.

Nvidia has seen some of the largest gains, rising from relative obscurity to briefly become the most valuable company in the world. In the face of recent losses, it is now the third-most valuable company in the world.

“Definitely some of that's tied to the trade war,” Tedford said. “I think some of it also might be some AI hype starting to ever so slightly slow down, and so there might be some, not bubble popping, but course-correcting happening there.”

The U.S. tech sector has had a rocky start to the year, after the emergence of Chinese AI startup DeepSeek threw investors for a loop.

DeepSeek’s claims that its new R1 model could perform on par with OpenAI’s latest models and cost just $5.6 million to train spurred concerns about the substantial sums U.S. companies are investing in AI development, causing the tech industry to shed nearly $1 trillion in value on a single day in January.

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