The wave of new tariffs introduced by the US administration will drive up technology prices, disrupt supply chains, and weaken global IT spending in 2025. Not only will these tariffs have a direct inflationary effect on technology prices in the US, but growing concerns about a broader economic slowdown will lead to weaker investment by businesses and consumers around the world, even prior to any slowdowns appearing in earnings or economic data. This impact will unfold quickly in 2025, despite the strong countervailing force of growing demand for AI and related technologies.
On March 31, IDC published a downside scenario in which global IT spending would grow by 5%, rather than the 10% growth we currently project in our baseline forecast. This scenario was modelled before the latest tariff announcements in April but already reflected the potential impact of a broadening economic slowdown. While the details of final tariffs don’t align exactly with that downside scenario, we expect our baseline forecast will move towards the lower end of that 5-10% range over the next few weeks.
As a result, we are developing a new downside scenario that reflects the possibility of a broadening global trade war, which will likely include additional tariffs and retaliatory measures by many countries. These may include protective actions against countries other than the US. Our new baseline forecast in April will reflect what we now know, which is that these new tariffs will have a significant negative impact on the ICT industry in 2025.
This situation remains highly fluid and dynamic. Tariffs set to be implemented on April 9 may yet be adjusted or postponed, and the response in other countries could include stimulus measures to protect short-term economic stability in China and elsewhere. This is a moving target, but the risk of a global recession is higher than one week ago, with some economists now pegging it at 40%, and this uncertainty will have an immediate effect on business and consumer confidence.
New tariffs will have an inflationary impact on technology prices in the US, as well as causing significant disruption to supply chains. While this impact will be most immediate in devices, then other compute, storage, and network hardware as well datacenter construction, even sectors such as software and services will be affected if tariffs are longer lived. There’s also an indirect negative impact of tariffs on software and services, where the provider delivering the software and/or services will incur increased costs for the infrastructure to develop and deliver the product, meaning that many software and services vendors will need to include increased costs in their own pricing assumptions.
Some devices and hardware vendors may seek to mitigate the impact, but US customers will swiftly feel the effect of higher prices. Lean inventories and rapid manufacturing cycles mean that price hikes will materialize quickly. The broad, unfocused nature of these new tariffs leaves manufacturers little room to adjust.
It’s important to note that our surveys of IT buyers had remained relatively resilient through March. While there is significant concern over the uncertainty caused by tariff policies, a majority of firms in March were trying to protect their key investment priorities around AI, analytics, security, and IT optimization. IT is more important to the business than ever before. We will be checking in with IT leaders on these same issues in mid-April.
Price sensitivity is rising, however, which history shows is a major cause of competitive disruption. The IT market will continue to be more resilient than during previous economic cycles, and more resilient than many other sectors of the economy. Service providers will try to maintain their aggressive investment in deployments of AI infrastructure, and they have the ability to optimize asset use to much greater extent than even the largest of their enterprise customers. For businesses, IT has largely transitioned from a capex to an opex model in which a larger share of technology spending is essential to business operations and is increasingly tied to business conditions.
Despite all of this, the reality of a slowing economy and rising unemployment will have a direct impact on IT spending. Consumer spending is likely to be hit hard. Businesses will first look to cut spending on devices and on-premise infrastructure, seeking rapid cost benefits to protect the bottom line. Any job cuts will have a direct impact on some types of IT spending.
IT services spending is vulnerable to a slowdown in new contract signoffs, which will be driven by a broader economic slowdown in the next 6-12 months. Combined with other economic headwinds, including government spending cuts in the US, this adds up to a much weaker outlook for short-term investment in new technology projects.
Conclusion
Our March 31 forecast of 10% growth for global IT spending will be reduced significantly in April, based on the tariff announcements of April 2. The situation remains extremely fluid, and subject to new announcements or changes, but a weakening economy will lead to IT spending cuts and delays in the next six months. We will move closer to the previous downside of 5% growth, which reflects a rapid, negative impact on hardware and IT services spending.
Agility is key to navigating this period of major disruption and uncertainty. It may take several months for the full picture to become clearer, but this is already causing delays in some types of investment. Underlying demand for IT is still high, and the likelihood of a decline in overall IT spending remains very low, but adjusting to a new baseline of slower growth in the near term is our new reality.
The tariffs announced this week have introduced significant instability into the IT market. If the measures announced on April 2 stay in place and trigger an escalation of retaliatory measures leading to a global recession, the impact on IT spending will be swift and downward, potentially leading to the worst market performance since the great financial crisis of 2008-2009.
IDC will continue to monitor developments closely. We’ll update our forecasts accordingly and publish new analysis as the implications for IT investment become clearer in the weeks and months ahead.
Contributors: Crawford Del Prete, Meredith Whalen, Rick Villars, Ryan Reith
