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Trump’s done right by freeing IT hardware from tariffs; slapping sectoral tariffs now would be silly

Good policy, like a good shirt, requires few or no alterations. But Trump is tailor swift, and his policy-making shoddy. His three China tariff revisions between April 2 and April 9 shook not only stocks but also US bonds. Now, after the mayhem and a big pause, he has signalled his first big retreat before China. Starting April 5 – so retrospectively – some 20 product categories, including smartphones, computers, chips, solar cells and memory cards, brought into US won’t face any tariffs other than the 20% ‘fentanyl duty’ on China. For how long? That’s unclear because commerce secretary Howard Lutnick on Sunday promised sectoral tariffs on semiconductors and electronics “soon”, possibly within a month. 

Regardless, one look at America’s imports shows why Trump had to retreat from the tariff front on Saturday. Last year, smartphones and computers were the two biggest US imports from China, amounting to $88bn of the $525bn import bill. Roughly four of every 10 smartphones, and one in three computers, sold in US were made in China. Unlike toys, lights, plastic goods and chairs – yes $8bn worth of Chinese chairs – phones and computers are complex goods that US can’t do without, nor can it find new suppliers for them overnight. Besides, tariffing phones would have hurt homegrown Apple most. With almost 58% US market share, iPhone, which is 80-90% sourced from China, could have become too expensive for most Americans and lost ground to the likes of Samsung, mostly made in Vietnam and India.

So, Trump’s latest decision should cheer Big Tech. Reports say Alphabet, Amazon, Apple and Meta intend to invest around $320bn on AI and data centres this year. Stargate, the $500bn AI project announced by OpenAI, SoftBank and Oracle, will also need new data centres. At a time when China’s breathing down America’s neck in the tech race, choking hardware flow with tariffs, or any other means, is a bad idea. India tried doing that with import licensing in Aug 2023, but had to pull back fast. In fact, any kind of hurdle for hardware and software capabilities – reducing migration, for instance – will be counterproductive for US. On the flip side, India has gained immensely from US immigration curbs. Forget BPOs, the $65bn-a-year GCC boom came about only because US wouldn’t let more Indian engineers in. If Trump wants US to stay ahead, he’ll have to stop raising walls and drop the new sectoral tariff idea before it roils stocks and bonds.