This episode explores the impact of President Trump's reciprocal tariffs on the tech hardware industry. Against the backdrop of the 90-day pause and exemptions following the tariff announcements, the discussion centers on the "China plus one" manufacturing strategy adopted by many IT hardware companies to diversify production outside of China. More significantly, the conversation delves into the effect of these tariffs on device costs, with an example illustrating how a $1000 smartphone could see a $50 price increase. Erik Woodring, Head of the US IT Hardware Team, details how initial cumulative tariff costs of over $50 billion for his companies have been reduced to approximately $7 billion, resulting in an average device price increase of around 5%. The discussion then pivots to mitigation strategies, including pulling forward inventory, cost-sharing with suppliers, and longer-term solutions like relocating production to countries with more favorable tariff arrangements, such as Mexico. However, onshoring production to the US is deemed unrealistic due to the concentration of skilled labor and specialized expertise in existing manufacturing hubs. Finally, the impact on demand is analyzed, with the possibility of a pull-forward effect in the second quarter leading to weaker demand in the second half of the year.
