Understanding Tariffs and Their Impact on the Tech Industry – Shimmy Says EP6

Hey everyone, it's Alan Shimel here for another Shimmy says, you know, I love doing these, shimmy says, to tell you the truth, it's kind of cathartic. But, um, this week I want to talk to you about tariffs and tech. Lot of talk going on about tariffs.

We're taring here in the us our three biggest trade partners probably, and, uh, talk of trade wars and, and retaliatory measures and all kinds of stuff going on. We could talk into about it at the macro level, but I want to talk to you today about what effect these tariffs are gonna have on our tech market. You know, the tech market's been quite frankly, shaky since the end of Covid.

We've had so many layoffs, more layoffs than many of us remember in the tech space. A lot of it is the result of hiring binges during Covid where we probably overhired and things now have kind of evened out. But what effect will these tariffs or could they potentially have on the tech market?

I think if we look at it, we gotta start at the semiconductor market because so much of tech starts at the semicon, you know, revolves around the, the hardware and the, the chips that are running all this software and AI and everything we're doing. And let's be clear, 80 to 90% of the semiconductors that we use in the US come from Taiwan and ti uh, China and Taiwan. Now, I know I, last week I talked about $2 trillion, and President Biden had this chips act where they had hundreds of billions of dollars set aside.

But the fact is, as we stand today, we don't have a big capacity to produce these chips here in the us And to build that kind of capacity is gonna take a minimum of three to five years. And quite frankly, we've never produced that quality and quantity of chip here in the us. It three to five years is the minimum.

We may find that it takes retraining an entire workforce or doing something pretty drastic. So what do we do for three to five years? Are we at the mercy of these tariffs and the 20 to 25% cost that may be involved in, in, in importing them?

That's anyone's guess, but to think that this is gonna force us to use us made semiconductors, yeah, it might, but we've got a five year gap to, to fill in there in the meantime. Um, what, what does it mean for the other tech industries? Well, first of all, let's remember how much of our technology, you know, revolves around those semiconductors, those servers.

What's it, what's cloud cost gonna be when they gotta pay more for their, for their hardware, data center costs, AI costs everything. You know, all this money pouring into ai, we're going to need it if it's 20 to 25% more. So, you know, the, the, the, the cost of the basic semiconductor, it ripples through the entire tech sphere, but forget semiconductors even for a second.

What about other materials that go into computers, other services, rare earths and minerals and so forth that you need raw materials, right? We get a lot of raw materials from Canada that's gonna cost more energy. We actually, though we're kind of energy independent in the amount of energy we produce here in the us we actually do share energy grid with Canada.

What is, what is that going to mean? Um, it, it's, you know, it, it's a ripple through the entire tech sector. On top of that though, there's, there's other, there's other macro conditions to worry about.

If car manufacturing slows down because of tariffs or, uh, uh, other imported kind of goods slowed down and it slows down the economy, inflation goes up, interest rates go up, people start buying less tech again, that's gonna have a very, very chilling effect on, on the tech sector. So our domestic tech economy and, and, and, you know, tech has become a big chunk of our economy is, is at the mercy of these tariffs, at least for the short term of three to five years. Now, on top of that, there's another aspect we've gotta think about, and that is what about when countries retaliate against us for our tariffs by raising their own tariffs?

So now all of a sudden it becomes much harder to sell US technology in Europe and China and in India and Taiwan and Canada and Mexico. I will tell you that most tech companies, at least 40% of their business is international non-US. If, if countries reciprocate against our tariffs by having tariffs of their own, you are talking about, all of a sudden it becomes really hard for us tech companies to sell their technology to foreign markets.

And what does that mean for the tech sector? What does that mean for the tech sector? Do we have tech companies move out of the US over it?

Do we bifurcate tech companies into US based versus foreign based and split 'em up? You know, how much money does a company like Apple or Meta or Google make from foreign markets and, and, you know, those companies are ripe targets for countries and nation states that want to reciprocate and retaliate against our own tariffs. I've always been a proponent of free trade.

I, I think I have a lot of faith in the American ingenuity, the American industrial engine, that given a level playing field, we could out innovate outproduce and outcompete any competitors or at least hold our own. At the very least, I'd like to see us make more level playing fields, not erect barriers and turn inward in, in some sort of isolationist stance because it's not, it's not good for our tech sec sector. It's not good for our economy as a whole.

It's not good for our nation as a whole. So I'm hoping that a lot of this ta tariff stuff winds up just becoming posturing for, for trade negotiations. But I fear, I fear it isn't.

And it could be we're in for some rough rides in the tech sector in the next three to five years, or at least until this administration's over and maybe some, some new kind of blood and new way of looking at global trade comes into power. That's it for this week, for Shimmy. Says, I hope you've enjoyed it.

It's, uh, it's interesting times we live in. com page, doing the text drawing gang. So I look forward to seeing you then.

But until then, this is Alan Shimel. We're out.