Tariffs Set Up Potential Cost Challenges for the Channel

The levies imposed by the Trump administration on Canada, Mexico, and China could be just the beginning of a trade war that will send technology prices soaring. 

By Larry Walsh

UPDATE: The U.S. tariffs on goods imported from Canada and Mexico were postponed until March after Mexico made concessions on border security and Canada entered negotiations with Washington. Meanwhile, tariffs on China took effect as scheduled. In response, China imposed reciprocal taxes on key American imports, including energy products, agricultural equipment, food, and commercial vehicles. While the tariff situation remains fluid, the economic impact discussed in this blog remains relevant. 

The technology industry is bracing for the impact of a Trump trade war, which officially starts on Feb. 4 when sweeping tariffs on imports from Canada and China — as well as reciprocal levies by Canada and Mexico — take effect. These tax measures are the first of what many political and economic observers anticipate will be a broad trade policy and negotiation tactic by the still-new second Trump administration.

Over the weekend, President Donald Trump announced 25% tariffs on all goods imported from Canada and Mexico, except for energy products from Canada, which will have only a 10% tariff. Goods made in China will have a 10% levy placed on them. Trump stated that the tariffs are necessary to hold these three countries accountable for controlling the flow of illegal immigrants and drugs.

Since the announcement, the Trump White House paused the tariffs on Mexico for one month. Mexico agreed to send 10,000 troops to the U.S. border to curtail drug smuggling. 

Trump campaigned on tariffs to rebalance U.S. trade agreements, stimulate the repatriation of manufacturing jobs, and increase government income to offset personal and corporate income taxes. He described “tariffs” as a beautiful word and a tremendous means for restoring American wealth, reminiscent of policies during the McKinley administration (1897 to 1901).

The reaction from the economic and finance communities was swift and as predicted. The Wall Street Journal labeled the tariffs “the dumbest trade war in history.” Lovely, a senior fellow at the Peterson Institute for International Economics, told CNN, “This is a huge gamble. It’s a recipe for slowing down the economy and increasing inflation.” Gregory Daco, chief economist at consulting and auditing firm EY, agreed, warning that, because the United States does significant trade with these countries, the tariffs could lead to higher inflation and lower growth.

In 2024, the total trade value of the U.S., Canada and Mexico was between $1.3 and $1.4 trillion.

Tariffs & Tech Vendors

Technology vendors have been preparing for the tariffs promised by Trump during the 2024 presidential campaign. According to data from the U.S. Census Bureau, the United States currently has a 24% global trade deficit on advanced technology products. Many technology hardware products are assembled in Mexico before being shipped here. Despite efforts to curtail access to American technology, China remains the leading manufacturer of business and consumer technology products.

The full implementation of Trump’s strategy of blanket 10% tariffs on all imports could significantly affect technology product prices, with laptops potentially increasing by 46% and smartphones by 26%, according to a Consumer Technology Association (CTA) analysis.

The technology industry and various industry associations have been lobbying the Trump administration to exclude technology products from tariffs. Additionally, they want Washington to loosen export controls so they can sell more products in foreign markets, such as China.

Many vendors had planned price increases this year to offset rising costs due to inflation and the use of new technologies like artificial intelligence. These planned increases were intended to preserve profit margins. However, the new tariffs may force vendors to absorb these costs, impacting profitability, or pass them on to businesses and consumers, potentially reducing spending further.

Broader Economic & Channel Impact

While tariffs will directly impact technology hardware, software and cloud services will not be immune. Channelnomics has heard from software service vendors concerned that the cost increase for hardware could affect the price of developing and maintaining data centers. Moreover, Canada’s and Mexico’s reciprocal 25% tariffs on American goods are primarily in agriculture, consumer products, lumber, and energy, aiming to make American consumers feel the economic pinch. These measures could lead to higher grocery prices, decreasing consumer spending and slowing the U.S. economy.

The impact on the channel remains uncertain. Past inflationary periods — during the COVID-19 pandemic, for example — forced many technology vendors to raise their prices, and those increases were often passed down to partners that struggled to relay these increases to customers. Economists believe the tariffs will push inflation rates higher, slowing business and consumer spending. Cloud and platform service vendors and managed service providers (MSPs), often locked into long-term contracts with fixed pricing, could be particularly vulnerable.

Channelnomics advises clients to seek cost-cutting measures to offset the increased costs resulting from tariffs and inflation. Over the past two years, companies like Dell, Cisco, and Intel have shifted sales responsibilities to channel partners, successfully reducing their sales costs. Channelnomics details how to apply this strategy in the 2022 Channel Recession Survival Guide.

Additionally, channel teams should begin preparing plans to communicate the impact of tariffs to partners and develop strategies to mitigate potential price increases. While channel leaders may not yet have a complete picture, they should establish a framework for communication, assign roles and tasks, and implement processes for swiftly disseminating information to partners.

According to the Channelnomics 2025 Channel Forecast report, most partners expect technology spending to increase 9% to 11%, which aligns with market analysts’ forecast of 9% to 12%. Tariffs and inflation, however, could alter this outlook if price increases dampen business and consumer spending.

The channel started 2025 with a resurgence in confidence. The Channelnomics Q1 Partner Confidence Index report revealed that most partners aren’t worried about inflation, interest rates, or government economic policies. A majority support Trump’s economic agenda and believe it will benefit their businesses. Channelnomics will continue to monitor the impact of U.S. economic policy on the channel.