Cloud computing could be caught in crosshairs of US-China tariff battle
UPDATE: Sept. 19, 2018: President Donald Trump released a statement Monday that the U.S. Trade Representative was directed to place the additional $200 billion in tariffs on Chinese imports. The 10% tariffs will take effect on Sept. 24 and remain at that level through the rest of the calendar year; at the start of 2019, the tariffs will rise to 25%.
President Trump also threatened additional tariffs on $267 billion worth of imports if China takes retaliatory action against U.S. industries. China responded on Tuesday with a 10% tariff on $60 billion of American goods.
On Tuesday, Alibaba Chairman Jack Ma expressed fears that the back-and-forth tariffs between the U.S. and China would have resounding impacts for two decades and push Chinese and foreign companies to moved production out of the U.S. to get around tariffs, reports Reuters.
Apple CEO Tim Cook, meanwhile, expressed optimism that the two countries would work through their differences and sort the dispute out, according to ABC News.
Tariffs on Chinese IT imports essential for cloud computing will hurt U.S. economic growth, according to the Information Technology and Innovation Foundation's Stephen Ezell and Caleb Foote in a report published Tuesday. An estimated 93% of U.S. businesses use cloud computing, which has leveled the playing field for smaller businesses by getting rid of high entry costs. And the construction and maintenance of data centers supports thousands of jobs and injects hundreds of millions of dollars into local economies.
The third list of proposed tariffs by the Trump administration targets components of cloud computing hardware and data centers that would disrupt supply chains and hurt providers and consumers, components such as printed circuit assemblies, routers, servers, motherboards, cables and memory modules.
With these items impacted, there are four consequences for cloud computing, according to the report: Higher prices for businesses and consumers, cost cutting measures for providers, investment diverted outside the U.S. and disruption of global supply chains.
The first tariffs affecting Chinese products came in late January with a 30% tariff on solar imports. In April, the Trump administration announced tariffs on $60 billion worth of Chinese imports, the first tariffs directly targeting China, which responded with $3 billion in tariffs on U.S. food exports.
The trade war briefly paused in May, only to resume nine days later with 25% tariffs on $50 billion worth of Chinese imports, $34 million of which started being taxed on June 15.
After back-and-forth reprisals, the U.S. announced additional tariffs on $200 billion more goods from China — an action China cannot directly countermeasure since it only has $80 billion more worth of goods imported from the U.S. it could tax.
The U.S. started collecting duties on the next $16 billion worth of Chinese imports on Aug. 7, bringing the total to $50 million. The third list on $200 billion worth of imports would have the bigger impact on cloud computing hardware components.
The consequences of these tariffs will have rippling impacts on businesses, Ezell and Foote wrote, such as:
Forcing a tradeoff between new technology purchases and cutting back in areas like expansion or job growth.
Reduced investment or R&D as profits decrease, potentially followed by layoffs.
Movement of hundreds of jobs and millions of dollars in output abroad.
Scrambling to find new suppliers outside of China that meet quality, price and capacity requirements.
Lowered productivity and efficiency as investment lags, driving prices up.
The hard costs could be massive. Twenty-five percent tariffs on printed circuit assemblies alone would reduce spending power of purchasers by $1.8 billion, according to Consumer Technology Association estimates, with a net $612 million loss in the larger U.S. economy, according to the report.
The hit to the U.S. cloud computing industry could be a boon to foreign countries that would bring in more investment. It could also help China's largest cloud provider, Alibaba, which is reportedly scaling back its U.S. efforts because of political tensions and an inability to make large enough inroads against incumbents.
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