How new tariffs will affect the Internet of Things

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Hello readers,

Welcome to the IoT For All newsletter! This week we’re talking about how tariffs could affect various parts of the IoT industry, the benefits of IoT system integrators, the future of data centers, and more!

Internet of Tariffs

Yesterday, President Trump announced a new set of tariffs on imports to the United States, including a blanket 10% tariff on all imports as well as higher, reciprocal tariffs on additional countries, resulting in a total tax of at least 54% on goods imported from China. What will that mean for the IoT industry? Well, it depends, both on who you are and how things shake out.

In principle, country-based tariff rates are straight-forward. But in terms of how certain goods are taxed and how prices will change, it’s a little more complicated to predict. For instance, Taiwan (which will face a new 32% tariff) produces the lion’s share of the world’s semiconductors holding a 68% market share and producing a full 90% of advanced chips. But many of those actually enter the U.S. from Malaysia (facing a new 24% tariff) where they are packaged, or are assembled into finished goods in Vietnam (facing a new 46% tariff).

IoT companies whose business is primarily in hardware, where margins are already thin, will be the most affected, as will industries looking to invest in physical IoT infrastructure as prices for devices and sensors increase.

Suppliers with diversified supply chains may be able to route goods through less expensive paths, as Christian Rothe, CFO Rockwell Inc suggested back in February:

But the potential for changing winds may make it difficult to justify much investment in alternatives. Companies that have invested in on-shoring, for instance, could wind up paying for their initiative if the Trump administration follows through on threats to roll back subsidies. And the reciprocal nature of these tariffs means affected countries could lower them at any time by slashing their own import fees.

The increased difficulty and expense in deploying new sensors will also have an impact on platform companies and cloud providers, who may need to shift towards value-added services as hardware becomes more expensive and competitive. Companies that can provide additional capabilities to existing suites of hardware will have a better chance of growth, despite the otherwise dour environment.

The X factor, of course, is uncertainty. While President Trump has been consistent on the threat of tariffs, the implementation so far has been unpredictable with various backtracks. Beyond that, there is also the potential for unpredictable retaliatory measures by affected countries, like Canada’s cancellation of a $100 million Starlink contract last month.

Baseline 10% tariffs are scheduled to go into effect on April 5, with the larger reciprocal tariffs slated for April 9. So there is technically time for modification in the wake of a generally negative market response. But however the next period rolls out, it will be a turbulent one for the IoT industry, and the most flexible will have the best shot at weathering it well.

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