A trade war in the cloud?
So far, the trade war is limited to actions and reactions related to durable things that trade throughout the global economy—cars, steel, and aluminum for instance. Add bourbon and Harleys for good measure. But will that remain the battleground or should we expect greater contentiousness around services, specifically software as a service and CRM in particular?
America does hefty business with the rest of the world in services which can span things like banking and finance, insurance. Right now the retaliation seems to be against areas that went for Trump in the last election but there’s nothing that says the pain can’t be spread around to services.
Current target industries and their workers might not provide sufficient leverage that other nations need to put the genie back in the bottle. Some of the people who make bourbon and motorcycles or who grow soybeans are vocal about their politics and form part of the Trump base. But their actions seem mostly limited to reactions not initiative. They’ll support a Trump policy but they haven’t been out front advocating.
On the other side of the coin—and I accept that this is a simplification—the tech sector is, by definition, entrepreneurial and able and willing to initiate action. So attacking subscription providers by foreign nations could, in theory, motivate more reaction designed to stop the trade war. There’s a lot of potential leverage there because the US has a dominant share of the software as a service economy and the subscription economy generally. While US companies have been stepping up efforts to locate cloud data centers in many countries to support data residency requirements, their services could still look like imported services and thus be subject to tariffing.
You might buy a used Harley rather than a new one or switch from bourbon to rye temporarily but how do you go without data? Not very well. That’s why I think the services industry could be a big loser in any trade war. Data and information make the world run and many companies are only at the start of their cloud translations so retaliation against subscription vendors could cause real damage.
The tech sector is also vociferous, both pro and con on numerous political issues. For every Marc Benioff advocating for progressive ideas there’s a Peter Thiel supporting the administration. But the progressives might have the numbers if only because so much of the industry is based in California. So there’s all the more reason for foreign governments looking for leverage against American tariffs to target the tech sector and especially software.
So, US dominance in SaaS and the cloud generally is a dual edge sword. US companies have dominant positions but for this reason it would be easy to target the industry with, say, 50 percent tariffs. As with other industries, tariffs could be expected to slow growth and adoption and possibly cause some vendors to set up production in other countries as Harley-Davidson is.
Once a path is set and investments are made the shape of any industry could be permanently altered. It will be hard for any business to abandon sunk costs in other lands once a trade truce is agreed to. So we’re possibly looking at a generational or even secular shift in the shape of the cloud and its industries should a trade war infect tech.
A trade war could be a driving force that sends clouds scattering to the corners of the earth. That could be good for some businesses but bad for individuals whose jobs would be put in jeopardy. It would be an acceleration of the natural commoditization cycle with one key difference. There won’t be many new job openings for displaced American tech workers whose jobs depart for parts unknown.
When the idea of a trade war first surfaced about a year ago, some prescient commentators suggested that there would likely be unforeseen consequences. No one has perfect visibility into the heart or actions of an adversary regardless of the analytics used. But retaliating against what an adversary does well is an old story and it wouldn’t surprise me to see tariffs on cloud computing services should cooler heads not prevail. Those tariffs will have follow-on effects that we can only guess at right now but it’s doubtful that those actions will improve US’s standing in tech.