A 25 percent tariff will lead to higher costs for agencies and might slow U.S. cloud adoption, analysts say.
Analysts at the technology think tank Information Technology and Innovation Foundation are warning that a proposed 25 percent tariff on certain electronics manufactured in China will have an adverse effect on the U.S. cloud computing industry by raising prices and potentially slowing adoption and innovation.
In April, the Trump administration proposed a set of tariffs on Chinese goods, aiming to combat an imbalance in trade practices. The scope of that action expanded over the spring and summer, eventually covering some $200 billion in trade value.
The tariffs are wide-ranging and include several hardware components used in cloud infrastructure. An ITIF report released Tuesday provides an itemized list of goods related to cloud technology, including circuit boards, switches, power supplies, coaxial cables and “other apparatus for transmission or reception of voice, images or other data.”
“For federal agencies, this will unnecessarily raise their information technology costs, which may slow their adoption of the more-efficient computing paradigm that cloud computing represents,” Stephen Ezell, ITIF vice president for global innovation policy and lead author of the report, told Nextgov in a statement. “For agencies, it means they may not be able to invest their IT budgets in optimal ways; for citizens, it means potentially higher costs—which tends to lead to higher taxes—or to lower-quality customer experiences.”
A March ITIF analysis of potential tariffs showed a 10 percent levy would slow U.S. market growth by $162 billion over 10 years; a 25 percent tariff would slow growth by $332 billion over the same period.
The report offers printed circuit boards as an example, stating that a 25 percent tariff would increase prices by 6 percent.
“To the extent these increased costs are passed along as increased prices, consumers and businesses would be forced to choose between forgoing the technology purchases they were planning on making and cutting back elsewhere, such as on new jobs or expansion,” the report reads.
“Many Americans will feel the impacts of the proposed tariffs on cloud computing through increased prices, lost jobs, and decreased economic opportunity,” said Caleb Foote, ITIF research assistant and co-author of the report. “The administration should pursue alternative policy measures that don’t raise the cost of key productivity and innovation-enhancing capital goods and services.”
The report notes that increased prices for U.S. cloud services could push consumers to international providers. This is an unlikely outcome for federal agencies, which generally require cloud providers and infrastructure to be U.S.-based.
“While U.S.-based cloud-computing providers would bear some of the increased costs engendered by tariffs, a considerable share of the costs would likely get passed onto cloud users,” according to the report. “Indeed, the biggest negative effect of the proposed tariffs would be on the wide array of businesses, nonprofits and government organizations that rely on cloud computing as an essential part of their business.”
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