The new US tariffs — 10% generally, 34% on Chinese imports, and 20% on EU goods — have set the stage for increasing IT costs. The impacts will evolve over the next two to three quarters as vendors consider, develop, and roll out new pricing strategies. To navigate these challenges, identify worst-case, best-case, and likely scenarios, along with the specific actions needed to mitigate the heightened cost pressures entailed in each. Tariffs Will Affect More Than Just Hardware While the immediate hit will be on hardware budgets, ripple effects will cascade to other parts of the IT ecosystem as all providers and partners absorb higher infrastructure expenses: Rising device costs will collide with Windows 10 end of service. CIOs in the US could see a 45% price increase on laptops and tablets. This comes at an especially bad time, as many organizations are planning to refresh their Windows fleet ahead of the impending Windows 10 end of service this coming October. Tariffs will make mass capital expenditures for PCs more expensive, prompting many to: 1) delay their Windows 11 refresh and pay for extended support for Windows 10; 2) seek alternative approaches to a hardware refresh (e.g., virtual desktops); and 3) investigate opex-based purchasing (i.e., device as a service) to avoid a massive capex purchase (though prices will rise for both traditional purchasing and leasing). Servers, storage, and network equipment will be hit directly. IT infrastructure will likely see significant price increases as major manufacturing nations face high tariff rates, especially in the US. The rising costs could balloon budgets and force CIOs to delay or prioritize the most important projects. CIOs and other tech leaders will need to proactively analyze costs, diversify sourcing, optimize inventory, and prioritize the projects that don’t sacrifice critical AI ambitions. Cloud, SaaS, and other services costs aren’t immune. While not currently subject to tariffs, the cost of cloud, software as a service, and other services could go up as their underlying costs increase and exchange rates fluctuate. More concerning would be if other countries retaliate by directly targeting US services where there is a surplus to many countries. The US has a $100 billion services trade surplus with the EU. If the EU escalates its regulatory non-tariff barriers to trade in services, including managed services or hyperscaler capacity, unit costs for American customers could increase while European customers’ choice of local solutions dwindles. Price hikes will surface in unrelated — seemingly risk-free — areas. Service providers and even software vendors will find ways to recoup cost, even for contracts seemingly unavailable for renegotiation. For example, a large enterprise that has purchased several products from the same vendor may find higher-than-usual price increases on a completely unrelated renewal to offset the inability to affect contracts directly impacted by the tariffs. This occurred previously during the US-China trade war in 2018–2019, when many tech hardware vendors were hit with 25% import tariffs on components. These vendors added a “tariff surcharge” to fixed price agreements, which many customers reluctantly paid. Heightened chip supply concerns could jeopardize AI plans. The disruption caused by changing the funding and tax incentives of the US Chips Act will also have long-term cost implications. While chip manufacturing in the US is announced, those plants will not start delivering before 2027. A threat in Europe’s trade-negotiation arsenal is restricting export of ASML machinery. If implemented, this could negatively impact chip supply in the medium term. The result: more price increases. US CIOs should plan to boost AI project budgets, as previously allocated budgets will likely not suffice to continue these projects at their current pace. Identify And Prepare For Four Scenarios Indiscriminate budget cuts can be costly and undermine priorities such as AI-led business and IT transformation that are crucial to long-term success. Forrester has identified a number of cost-cutting options that are much more targeted and, in many cases, overdue — e.g., app portfolio consolidation and rationalization. Even more effective is to embrace scenario-based planning. Envisioning best- and worst-case outcomes and mapping potential scenarios (such as recession-driven cuts, demand surges, and regulatory shifts) builds a proactive response toolbox. Consider these four scenarios: Scenario 1: Tariff pause or delay. Earlier this year, the Trump administration paused initial tariffs on Canadian and Mexican goods. We could see a similar reaction this time around, either due to domestic pressure or international negotiations. This is the most favorable scenario and the least likely, however. Even in this scenario, CIOs should engage in difficult prioritization discussions, as we project that real GDP will slow sharply to 1.8% over the next three years, and tech spending growth typically follows this closely. In addition, procurement teams should be engaged now to assess current contracts in flight and prepare for possibly contentious midterm renegotiation scenarios (see next scenario). Scenario 2: Tariff reductions. Negotiations occur and certain tariffs are reduced, but there is a new normal of trade tariffs that businesses just adapt to over time. Markets expected a 10% average tariff (on goods, not services) initially, so after the initial dust settles and negotiations occur, this is a reasonable and likely outcome. Regarding prioritization, CIOs should partner with their executive peers to rank-order key business priorities in terms of value to the company and have an agreement on where to draw the line for demand cuts in response to tariff actions. This line will likely need to be mobile, as tariff actions can either be minimal or highly escalatory (see next scenario). Scenario 3: Escalating retaliatory trade tariffs. In this worst-case scenario, negotiations are unsuccessful, and impacted nations impose equal tariffs on goods as well as add services to the mix where the US tends to have a trade surplus. In this scenario, CIOs must pursue an urgent overhaul of spend management playbooks, prioritize ruthlessly, and defer non-essential hardware upgrades to navigate the heightened cost pressures and potential talent constraints. CIOs will also need to support the business in urgent work to review strategic options for supply chain reconfiguration
