Technology sector withers as Trump goes on a tariff rampage. Could the tariffs, somewhat ironically, rein in big tech?

Although we knew the Trump tariffs were coming, to say they were “worse than expected” is an understatement.

It’s early days and nobody knows how long they’ll last, or which countries and industries will strike “deals” for exemptions, but the stock markets are collapsing currently.

As of writing, it’s a sea of red everywhere. Bloomberg reports US$5.4 (NZ$9.65) trillion has been wiped out in market value in just two US trading sessions in the US alone.

The tech sector has been particularly hard hit, not spared by being incredibly diverse with its products and services being deeply embedded in every part of the world economy.

That tech shares have been whacked so hard is perhaps a little surprising.

You have the likes of Nvidia, which is fundamentally a hardware producing company. Physical goods are easy to slap with tariffs, but many tech companies are also service providers.

Cross-border services are not impossible, but difficult to tariff. Even Apple, which is best known for its hardware, has grown services revenue significantly through offerings like its App Store and other online offerings.

An irrational trade war is just that however, and investors are spooked. Technology isn't detached from other parts of the economy, and adding insane levels of complex tariff bureaucracy and expense will inevitably hurt growth and most likely make the whole sector go backwards.

Shares in “The Magnificent Seven” companies - Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta Platforms, and Tesla - which, with the exception of Musk’s electric vehicle brand, performed strongly overall in 2024, are dropping like stones. Nvidia and Apple shares alone have lost NZ$930 billion in market value.

In recent news, Apple had the dubious distinction of being used to illustrate how much the tariffs would put up prices of its products for American consumers. The vast majority of its iPhones, Macs, iPads, and Watches, are still made in China which the US has now imposed a 54% tariff on.

If Apple were to pass on the price hikes caused by the tariffs, it would make its devices very expensive for American consumers; one analyst estimated a high end iPhone would cost US$3500 (NZ$6255) retail.

The potential price hikes have Apple and other companies with physical supply chains caught between a rock and a hard place.

They can’t expect their customers to stomach massive price hikes, nor can they wear those themselves.

It’s also unlikely tech companies could squeeze their component suppliers and original equipment manufacturers to reduce costs enough not to meaningfully offset the tariff-induced price hikes.

There are also the 34% retaliatory tariffs against the US that China has imposed to factor in.

Tariffs are a storm cloud for the tech sector, one that could compound another: billions of dollars have hastily been sunk into artificial intelligence.

If the US is heading towards a recession, and bankers JPMorgan has raised the chance of that happening to 60% from 40%, it’ll be even harder for AI heavy companies to get a return on investment in the very capital intensive technology as customer spending will go into reverse.

We already saw how jittery the stock markets are about the huge amounts at stake for AI, when China’s DeepSeek unveiled its large language model which the company said was trained for far less than Western counterparts.

Speaking of China: everyone’s nervously watching Taiwan, where 60% of the world’s semiconductors (chips) are made, to see if the tariffs make a Chinese invasion of the island more or less likely. It’s hard to imagine any nation taking leave of its collective senses like that as the consequences of invading Taiwan would be devastatingly bad for it and the world.

Then again, we’re back to the 30s with Smoot-Hawley style tariffs, a tilt towards fascism, and imperialist wars. That’s a trifecta of sure-fire losing notions, and nobody should be surprised if a fourth one is added to the mix of idiocy.

Similarly, you have to wonder how the tech chiefs in charge of multi-billion dollar enterprises lacked the ability to fathom the rather obvious consequences of the policies being enunciated quite clearly during the presidential election, and which they chose not to oppose, with some even backing them with big money.

The tariffs could rein in big tech by weakening the US giants, somewhat ironically given governments around the world have long considered them to have become too big for their boots.

It’ll be interesting to see if shareholders punish the hugely well-paid executives for supporting and enabling the disastrous direction of US policies, or if we'll watch a Thelma and Louise car ride over the cliff till the inevitable end.