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President Donald Trump’s broad-ranging tariffs went into effect earlier Tuesday, sending the market in a downward spiral.
The United States will be enacting 25% duties on all Mexican goods and most Canadian goods, and 20% on all imports from China.
Retaliatory tariffs followed promptly: Canada imposed 25% tariff on $107 billion worth of American goods, as China announced duties of up to 15% on agricultural products and targeted actions at more than 20 companies, including artificial intelligence startups and drone makers. Mexico’s President Claudia Sheinbaum said she will announce retaliatory measures on Sunday.
The tech industry is wary. Shares of Tesla (TSLA-2.74%), which owns a major assembly plant in China, were down more than 3% in Tuesday late afternoon trading. The stock gained back some of its losses from earlier in the day when several investors downgraded the stock due to tariff fears. Retailer Best Buy (BBY-12.19%) warned investors that the duties could increase the price of the electronics it sells.
“In terms of visibility of goods, I’d say Apple (AAPL-0.16%) and Tesla are probably the headliners,” D.A. Davidson head of technology Gil Luria told Quartz.
But the tariffs and their immediate impact is by no means unexpected by global markets as Trump made his fondness of tariffs clear even on the campaign trail. Tech analysts are more worried about how long the tariffs will last, as well as whether or not further escalation in reciprocals will occur — and if they’ll extend beyond tariffs on physical goods.
“It’s far more likely that this time, they’re going to hurt the U.S. where it matters,” Luria said, adding that the big tech companies are “the best target.”
If Canada, Mexico or China decide that the U.S. has taken a confrontational approach to tariffs, they can respond in kind by penalizing big tech companies like Microsoft (MSFT+0.40%), Google (GOOGL+2.56%), Meta (META-1.97%) or Amazon (AMZN-0.06%). This, Luria said, would be “the most meaningful and most broad in its impact.”
“In China, for instance, they can just eliminate the sales of iPhone altogether,” Luria said. “These are all things that any country that the U.S. is getting into a confrontation with could decide to do in order to exert pressure on the U.S. to reduce those tariffs.”
Following the first set of 10% tariffs on Chinese imports last month, Beijing was quick to retaliate with an investigation into alleged antitrust violations by Google while reportedly laying the groundwork for a formal probe into Apple’s App Store.
Last month, the Financial Times reported that the EU is ready to impose retaliatory measures on Big Tech companies in the case of a potential dispute with the Trump administration. Trump has threatened to use tariffs on the EU several times.
But some are optimistic that things won’t escalate to that point.
“As we navigated in 2018/2019 we caution this is all a game of high stakes poker to get other countries to the negotiating table and will very likely not last for an elongated period of time,” Wedbush’s Dan Ives wrote in Tuesday morning’s note.
Aggression towards China is big risk to AI trade
An aggressive approach towards China and chip export controls is “the biggest risk” to the artificial intelligence trade, according to Ives.
Nvidia (NVDA+2.47%) stock closed down 8.7% on Monday after Singaporean police uncovered an illegal export operation aiming to take servers containing Nvidia chips to mainland China in violation of American chip export controls that the market fears the U.S. might now further restrict.
“Outside of the U.S., there’s been a surprising amount of openness to working on DeepSeek models, and the more the U.S. alienates its trading partners, the more likely they are to gravitate to Chinese models,” Luria said.
But any slowdown in the AI trade associated with these tariff-borne near-term risks will be short-lived, according to Wedbush analysts.
“Nvidia, Microsoft, Alphabet, Amazon, Palantir (PLTR+3.21%), Salesforce (CRM-1.50%), Tesla, Apple will remain the stocks to own and any weakness is a buying opportunity in our view given the fundamental demand picture,” Ives wrote. “This will be an ‘uncomfortable time for growth investors’... but ultimately this is not the time to run for the hills in the tech trade and instead own these tech AI winners.”