📉 What Tariffs Mean for AI: A Looming Storm Over the Tech Sector
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Welcome to a new episode of the podcast AI Unraveled, created and produced by Etienne Newman, a senior software engineer and passionate soccer dad from Canada. Great to be here. If you're finding these deep dives into the world of AI valuable, please take a moment to like and subscribe to the podcast on Apple. It really helps. Definitely. And today we're diving into something pretty

pretty significant, actually. It's the newly announced tariffs stemming from President Trump's policy changes announced just this Wednesday night. They could really shake things up for the AI landscape. Exactly. Yeah. One of the sources we looked at, it says Daily Chronicle tracking AI innovation. And they, well, they didn't pull any punches, called it a looming storm for the tech sector. Strong words. Yeah. That definitely grabbed our attention. So for everyone listening, the big question we're trying to unpack today is,

Are these tariffs really going to cause a storm for AI? And, you know, what does that actually mean for how we understand where tech is headed? Right. And our mission basically for this deep dive is to get past the initial shock headlines. We really want to dig into the details about these tariffs. How might they impact the, well, the very foundations of the AI industry and hopefully provide some clarity because let's face it, there's a lot of market uncertainty right now. Okay, let's get into it. First things first.

What exactly are these new tariffs that have got everyone talking? Okay. So the core of it is a new baseline tariff. It's 10% on pretty much all goods coming into the United States.

But, and this is the key part, the policy also slaps much, much higher tariffs on goods coming from specific countries. OK, higher tariffs. Which countries are we talking about here? Which ones are facing these bigger hits? Based on what we're seeing in the sources, three main areas are targeted. China is facing an additional 34 percent, which brings their total tariff up to a hefty 54 percent. Wow. 54 percent. Yeah.

Then you've got Vietnam. They're looking at a total of 46 percent. And for Taiwan, the total tariff is set at 32 percent. Those are really substantial increases.

And this isn't something that's going to be phased in slowly, right? The timing seems pretty aggressive. That's absolutely right. It's fast. The initial 10% baseline, that's scheduled to kick in really soon, April 5th of next year, 2025. Okay. And those much higher country-specific tariffs for China, Vietnam, Taiwan, they follow just days later on April 9th, 2025. So basically a very quick and significant shift in the whole trade picture. Now,

Let's connect this directly to AI. Why is the AI sector, you know, particularly vulnerable to this kind of thing? Tariffs hit different industries differently, don't they?

That's a really crucial point. AI's vulnerability stems from its deep, deep reliance on these incredibly complex global supply chains. Think about the actual physical stuff that makes AI work. Everything from the phone in your pocket to the massive data centers running algorithms. Right. The hardware itself. And where does most of that hardware, those essential bits and pieces actually come from? Exactly. Our sources show that the core components driving AI

We're talking high performance GPUs for processing, specialized memory chips, the sensors collecting data, even the networking gear connecting it all. A huge chunk of it is manufactured or assembled in precisely those countries now facing these steep tariffs. Can you give us some specific examples? Which companies, which regions are we really talking about as critical links in this chain? Sure.

Top of the list has to be Taiwan Semiconductor Manufacturing Company, TSMC. They're based in Taiwan, obviously, which now faces that 32% tariff. And TSMC is, well, indispensable. They make the advanced chips for basically every major AI player you can think of. NVIDIA, AMD, Apple.

Then you have the assembly plants. Many of those are concentrated in China and Vietnam. They're putting together the final products, you know, consumer gadgets, industrial equipment, lots of stuff with AI inside. And finally, the sources also highlight rare earth minerals essential for making these advanced chips and also for battery tech, which powers so many devices. And guess where a lot of those are sourced?

primarily Asia. So, yeah, hitting all these fundamental pieces, the concern makes a lot of sense and the market reaction, it seems like it reflected that concern almost instantly, didn't it? Oh, absolutely. The announcement set off a really sharp immediate sell-off. The Dow Jones dropped, what was it, 1,600 points?

The S&P 500 went down 5 percent and the Nasdaq, which is heavy on tech stocks, got hit even harder, down 6 percent. And that actually brings the Nasdaq's drop for the year to date to 14 percent. Those are really dramatic numbers. And the big tech giants, the so-called Magnificent Seven, they weren't spared either. Not even close. They actually took some of the biggest hits. Apple dropped 9 percent. Amazon also down 9 percent. NVIDIA, you know, the

absolute cornerstone for AI chips fell 7%. Microsoft is down 2%. And Google, well, Alphabet, its parent company, it dropped 4%. And the total value loss I heard was just enormous. It really was. If you add up just those seven companies, they shed nearly $1 trillion in combined market value. Just...

Right. And the sources directly tie these huge losses to the fears we're talking about, worries about supply chains getting totally disrupted and the inevitable increase in production costs because of these tariffs. You brought up TSMC earlier based in Taiwan. Their role seems like a massive point of anxiety in all this, doesn't it? Absolutely. The sources really hammer this point home.

TSMC is the linchpin for almost every major AI company. NVIDIA's cutting edge GPUs, AMD's processors, the custom silicon in Apple devices, they all rely on TSMC's factories in Taiwan, a Taiwan facing a 32% tariff.

Yeah. And wasn't there some talk, some rumors about potential exemptions for semiconductors? Did anything come of that? Yes. The sources do mention that. Apparently, the White House discussed possible exemptions for semiconductors. But the official policy, as announced, seems vague on that point, or at least there's no clear carve out mentioned yet. And that lack of clarity, that ambiguity is definitely fueling the market jitters. Right. I saw a quote from AMD CEO Lisa Su. She sounded...

Pretty cautious. Yeah, that's right. The quote was something like it's too early to determine the long term effects and that they need to observe how the situation unfolds in the coming months. That really tells you how much uncertainty there is, even at the highest levels of the industry.

And interestingly, it wasn't just companies with direct operations in, say, Taiwan that saw their stocks fall. Even semiconductor firms that might seem on the surface less exposed were affected. Exactly. Companies like Micron, Broadcom, they also saw their stock prices dip.

It suggests investors aren't just looking at direct tariff impacts, but at the overall instability in the entire semiconductor ecosystem, you know, the knock-on effects. OK, so let's pivot slightly. What are the likely consequences of all this for actually using AI, for companies adopting it? If the hardware costs go up, that must have an impact, right? That's really the million-dollar question or maybe trillion-dollar question now. The sources talk about the risk of demand destruction in AI. Demand destruction.

Yeah, basically because AI adoption, especially the big generative AI stuff, is often still in its early stages and these huge

upfront investment, think cloud computing power infrastructure. If those costs suddenly jump because of tariffs, companies might just say, whoa, let's pause or scale back or delay their AI projects. So all those ambitious AI rollouts we keep hearing about, they might get put on hold. It's a very real possibility. There's a quote from tech analyst Dan Ives warning about a potential category five supply chain hurricane.

He suggests the sheer uncertainty could just cause IT budgets to freeze up while companies wait and see. And this isn't just about delays within the US, right? There could be bigger global shifts happening. For sure. AI expert Dr. Srinivas Mukamal made a really interesting point. He suggested that if American tech gets significantly more expensive due to tariffs, it could actually push emerging markets to develop their own supply chains, their own domestic capabilities for these critical components.

That's fascinating. Kind of an unintended consequence, potentially accelerating development elsewhere. So the big picture question then, are we seeing the start of an AI bust like the dot-com crash? Or is this more like a...

You know, a temporary speed bump. Well, the sources did include analysis from Goldman Sachs. They cautioned against making a direct comparison to the dotcom bubble. Oh, OK. Why? Their point was that current tech valuations, while high, are generally more grounded in actual earnings compared to the often purely speculative valuations back then.

That's somewhat reassuring. But the sources also mentioned the idea that maybe the AI hype cycle was peaking anyway. Yeah, there's definitely an acknowledgement of that possibility. You know, the initial massive excitement, maybe some overstatement of the immediate returns on investment for AI. That's pretty typical for new tech waves.

The real worry, according to the sources, is if these tariffs actually help trigger a broader economic recession. OK. And how would a recession potentially sparked by tariffs specifically hit AI? Well, in that scenario, what the sources call the AI trade, basically all the investment flowing into AI could unwind really fast.

you'd likely see fewer big AI infrastructure projects getting funded. Innovation might slow down as companies get more cautious with spending. And investors would probably become much more wary of backing AI ventures. Right. So if we try to boil down this middle section, the key points seem to be, one,

AI is super exposed because of these global supply chains. Two, tariffs will likely make AI infrastructure more expensive and could delay adoption. And three, all this uncertainty and potential geopolitical friction could just freeze investment and slow down AI development overall. That sums it up perfectly. The interconnectedness is the key vulnerability here. These tariffs could create some serious headwinds for the whole AI industry. OK, we're going to take a very quick break.

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OK, we're back. So as we wrap up this deep dive on these new tariffs and their potential impact on AI, the main takeaway really is the significant challenge they pose. That heavy reliance the AI sector has on global supply chains, especially the ones now facing these higher tariffs. It just creates this fragility. Yeah, fragility leading to potentially higher costs and like we discussed,

delays in getting AI widely implemented. Exactly. And the market's immediate sharp reaction certainly underscored those concerns with those huge drops in tech stock values. Right.

But it's not all doom and gloom necessarily. The long term picture is still kind of fuzzy. It is. A lot depends on what happens next. Will there be negotiations? Will specific exemptions be carved out like for semiconductors? How will overall investor sentiment hold up as things unfold? These are still open questions. One of the sources included a quote from Gene Munster at Deepwater, and he framed it as possibly being a pause, not a collapse.

That felt like a slightly more optimistic take. It does offer that perspective. It suggests that, OK, maybe we see a slowdown, a temporary setback in the breakneck speed of AI development and rollout. But the underlying technology, the potential that hasn't disappeared, it's more about navigating this period of disruption and uncertainty. So maybe a final thought for everyone listening to Mullover. Given how interconnected everything is in global tech today,

Could these tariffs, maybe unintentionally, actually spur innovation in completely different regions? Or maybe accelerate the move towards more localized supply chains, even if it causes short-term pain? It's a really interesting point. What new vulnerabilities might this create? But also, what new opportunities could emerge from this kind of major shift in global trade policy, specifically for the AI landscape, maybe in the next few years? Definitely something to think about. The ripple effects could be quite unexpected. Absolutely.

These kinds of policy shifts can really reshape the technological landscape in ways we don't immediately foresee. And just one last reminder, if you're looking for tools to help you navigate this complex and evolving tech world, and especially if you want to master those crucial certifications in cloud, finance, cybersecurity, healthcare, or business, do check out Etienne Newman's AI-powered Gemcat tech app. Yep. The links are in the show notes. It's a great resource. Thanks so much for joining us for this deep dive today.