The U.S. trade war with the rest of the world is largely focused on manufacturing and agriculture. Imposing levies on durable goods — tangible items that can be touched and handled — is relatively easy. Factories and docks also make compelling backdrops for political photo ops. This is why tariffs tend to target goods that can be loaded onto ocean-faring ships.
An often-overlooked area of risk in the trade war is nondurable goods and services. While car importers are paying a 25% duty at ports of entry, American financial, consulting, and IT services — including software — remain unscathed. In 2024, the U.S. trade deficit in durable goods and food products reached $1.21 trillion, but the United States recorded a surplus of about $300 billion in services, one-third of which was with the European Union.
The Trump administration paused most tariffs — except those targeting China — for 90 days, giving businesses time to plan and trading partners an opportunity to negotiate new arrangements with Washington. If the trade situation remains unresolved and President Trump enforces the tariffs in full starting in July, the resulting tit-for-tat retaliation could extend beyond the manufacturing sector.
Professional services and intellectual property account for nearly one-third of all U.S. exports, totaling $1.1 trillion in economic activity. Of that amount, 7% comes from information and communications technologies (ICT), 13% from intellectual property (including computer software), 2% from audio/visual services, and 25% from research, development, and management services. The rest of the world spends significantly more on American services than Americans spend on services from Europe, Asia, and elsewhere.
The European Union recognizes this as an economic vulnerability. Imposing tariffs on services and intellectual property is difficult because there’s no physical product to tax and no ports of entry for collection, but financial transactions still occur. A core component of the EU’s retaliation strategy is imposing value-added taxes (VAT) on American services. This would raise the cost of everything from consulting to cloud services delivered by U.S. companies.
The Trump administration factors VAT into its tariff assessments, viewing it as another form of trade barrier, even though value-added taxes apply equally to domestic and foreign goods and services.
From a competitive standpoint, VAT would make American services more expensive, forcing suppliers such as AWS, Google, Microsoft, IBM Global Services, Boston Consulting Group, and McKinsey to raise prices or absorb the cost. This would give European IT and consulting firms — including Atos, Deutsche Telekom, Orange, and Telefónica — an opportunity to expand their regional and global presence.
That said, Europe lacks domestic alternatives to many U.S. platforms. While SAP, Siemens, and Dassault Systèmes are regional giants, there’s no equivalent to Microsoft, Google, or AWS to backfill demand. As a result, VAT could raise prices without offering relief from local providers, harming European businesses as much as their American counterparts.
These threats are already prompting action. European technology leaders tell Channelnomics that they’re actively exploring alternatives to U.S. brands. One Asian software company noted that it now feels it has a competitive advantage for the first time. Partners in the Middle East are seeking to bridge the East–West trade divide through new technology pathways.
The potential for broader retaliation and backlash against American brands adds complexity to the global economic outlook. Channel leaders should consider these variables when preparing contingency plans for a possible downturn.
Channelnomics has updated its Channel Recession Survival Guide to help channel leaders and managers prepare for and leverage partner-led strategies during economic disruption. We continue to monitor evolving trade and macroeconomic conditions and advise vendors to prepare contingency plans in case the trade war triggers recessionary effects.
Larry Walsh is the CEO, chief analyst, and founder of Channelnomics. He’s an expert on the development and execution of channel programs, disruptive sales models, and growth strategies for companies worldwide.