Blanket Tariffs Will Reshape Channel Economics

The incoming Trump administration intends to impose widespread tariffs on trade partners, including Canada and Mexico, which will lead to increased prices of tech components and products.

By Larry Walsh

The Canadian dollar and Mexican peso took a valuation hit as President-elect Donald J. Trump reiterated his incoming administration’s intent to impose sweeping tariffs on imports, including those from the United States’ two closest neighbors and trading partners.

Trump and his economic team are planning a 10% tariff increase on goods produced in China, duties on imported materials and finished products from nearly every country, and a 25% tariff on goods imported from and through Canada and Mexico. This move would effectively nullify the United States-Mexico-Canada Agreement (USMCA), the free trade agreement that replaced the North American Free Trade Agreement (NAFTA) in 2020.

Tariffs on Chinese goods are already set to have a profound impact on prices paid by American businesses and consumers. The United States imports more than $500 billion in products and materials from China, its third-largest trading partner. However, tariffs on Canadian and Mexican imports are expected to have a broader impact on prices, given that the U.S. imports a wide range of goods from these two countries, including raw materials, components, and finished products.

In recent years, Mexico in particular has served as a work-around for tariffs imposed on other countries, especially low-cost manufacturing hubs in Asia. By channeling products through Mexico, many companies, including technology vendors, have avoided paying duties at American ports. New tariffs will likely increase costs across the supply chain, affecting manufacturers, partners, and customers alike.

Rising Costs and Supply Chain Disruptions
Tariffs function as a tax on imported goods, and their financial burden will ultimately be borne by U.S. businesses and consumers. For technology vendors relying on global supply chains, this translates into higher costs for key components such as semiconductors, displays, and batteries. Vendors are expected to pass these costs along to their partners and customers, resulting in price hikes for technology products and services.

The rising prices will deter some customers from making purchases and place significant pressure on the channel ecosystem. Managed service providers (MSPs), operating under long-term contracts, may struggle to absorb or pass along these increases, leading to margin erosion that could threaten their financial health.

Slowdown in Tech Spending
As prices increase, businesses and consumers are likely to cut back on technology spending. During the pandemic, similar dynamics emerged as input shortages and inflation drove up costs, causing customers to delay or forgo purchases. The additional burden of tariffs will exacerbate this trend as companies push vendors and partners for price concessions to offset rising expenses.

This dynamic will create a challenging environment for partners, particularly those reliant on consistent revenue streams from hardware and software sales. Reduced demand may lead to slower inventory turnover, decreased sales volumes, and heightened competition within the channel.

Margin Compression and Its Downstream Effects
Margin compression will be one of the most immediate consequences of the tariffs. As vendors face higher production costs, their ability to offer back-end rebates and incentives to channel partners will diminish. These programs, which are critical to partner profitability, will likely be scaled back, leaving partners with fewer options to maintain their margins.

Partners that rely on these incentives to invest in growth — through marketing initiatives, hiring, or technical training — may be forced to reconsider such expenditures. The resulting financial constraints could slow innovation and service delivery across the channel.

The Impact on MSPs
Managed service providers are particularly vulnerable to the effects of tariffs. Locked into long-term contracts, many MSPs lack the flexibility to adjust pricing to account for rising costs from their vendors. This leaves them with two difficult options: absorb the additional costs and reduce their margins or attempt to renegotiate contracts, potentially straining customer relationships.

MSPs serving small and midsize businesses may be especially hard-hit, as their clients often have limited budgets and are less able to accommodate price increases. This financial pressure could push some MSPs operating on already tight margins toward insolvency.

Long-Term Implications for the Channel
The tariffs are likely to reshape the U.S. tech channel in lasting ways. Vendors may explore cost-mitigation strategies such as diversifying their supply chains or increasing domestic production, but these initiatives require significant time and investment. In the interim, the channel will face rising costs and shrinking incentives, which could strain partner-vendor relationships.

To maintain resilience, channel partners will need to focus on value-added services that differentiate their offerings and justify their pricing. Vendors, in turn, must find innovative ways to support their partners — through operational efficiencies, targeted incentives, or enhanced training programs — despite the financial pressures imposed by tariffs.

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