This Brief, published on April 17, 2025, presents a highly speculative argument that a major beneficiary of the current US-China trade war may possibly be US public cloud providers.

Neuralytix cautions that this Brief is purely speculative. The unceasing changes of the current US administration’s position on tariffs and China’s retaliation will have a major impact on the validity and realization of our speculative arguments and equally speculative conclusion. The lack of a sustained clarity in the rate, the goods, and the duration of tariffs affected under the current administration compounds the speculative nature of our Brief.

We propose our speculative thoughts in this Brief for the consideration of US enterprises as they evaluate their current, short-, medium-, and long-term IT strategies.

The current state of affairs

On April 9, 2025, the steep 125% increase levied on Chinese imported goods by the current US administration went into effect. However, on April 11, 2025, the administration decided to exempt many technology goods from this increase, backdated to April 5, 2025. These goods include smartphones, PC, and servers imported from China. A 20% tariff levied by the administration to combat threats posed by the drug Fentanyl remains in effect.

This exemption represents a major relief to US enterprises as they rely heavily on IT infrastructure hardware manufactured and imported from China.

Quoting “top US officials”, the Guardian reports these exemption will be “short-lived”. Neuralytix is inclined to agree with this opinion.

Options available to US enterprises

To take advantage of the current exemptions from increased tariffs, Neuralytix proposes several options available to US enterprises:

1. US enterprises can hope that US IT vendors, such as Dell, HP, etc., will immediately stockpile exempt products in the US. This could possibly temper extreme hikes in prices if or when the current exemptions. But this option would have to assume that US vendors can land exempt products at a US port before any prospective expiration of the exemption.
2. US enterprises, public cloud providers, and hyperscalers, that buy directly from Chinese manufactured can equally stockpile exempt products. The same assumption applies regarding landing the exempt products at a US port as above.
3. Immediately accelerate, review, or reevaluate their position as it relates to their reliance on public cloud providers and lock in long-term pricing contracts with one or more public cloud providers.

However, Neuralytix speculates that the first two points above carry several possible challenges as they relate to viability:

1. How can US enterprises even speculate their infrastructure hardware needs to begin to make even a guesstimate on how much hardware they will need to accumulate? AI exacerbates the problem further as US enterprises are still trying to figure out what the potential impact of AI will have on their IT budgets. This makes predicting and forecasting the amount of computing capacity and data storage needed by US enterprises nearly impossible.
2. Even if US enterprises can make a reasonable guesstimate, will they have the financial resources to take immediate action to acquire the quantity of products they hypothesize they will need?
3. For those potential US enterprises that have the financial resources, do Chinese manufacturers have sufficient supply to meet the potentially exponential increase in demand?
4. Hypothetically, Chinese manufacturers may opportunistically auction off their current supply to the highest prospective bidders (although we suspect this is likely to be tempered by long-term price existing agreements). Such a hypothetical price hike will potentially reduce, cancel out, or in the worst-case scenario turn any potential advantage the current tariff exemptions into a disadvantage for US enterprises. In the worst-case scenario, Chinese manufacturers would benefit from the tariff exemption as they could see potentially realize an unexpected immediate increase in profits.
5. Finally, as the current supply of Chinese manufacturers begin to dwindle, do Chinese manufacturers have the capacity and capability to increase production to meet any possible increase in demand?

Can US enterprises minimize the disadvantage of the advantage?

The US-China trade war has created one certainty – sustained uncertainty.

While US enterprises will no doubt try and take advantage of the current exemption, there is the lingering question of how can US enterprises possibly put together any feasible, or even speculative, budget for their IT infrastructure capital investment and operating expenditures?

Additionally, there is no possibility to even begin to speculate what the next administration will do – might they reverse, reduce, or increase any proposed tariffs?

Neuralytix speculates that given the uncertainty of these possible factors, put forward the speculation that US enterprises might make it their long-term strategy to rely on US public cloud providers.

There are several potential benefits to this strategy:

• Public cloud providers do not sell goods. They provide services. There are no tariffs. Services offered by US public cloud providers are not subject to tariffs as these services are not imported.
• As public cloud providers have tended not to increase prices for each specific service instance type, we speculate that public cloud providers may accept lower gross margins to sustain this pricing policy.
• Most importantly, there is the reasonable possibility that US enterprises will see it as a benefit that they can possibly create a predictable and sustainable IT budget.

It is the latter point, more than the former point, that Neuralytix speculates the possibility that US enterprises may decide to rely on public cloud providers for their long-term IT strategy.

In other words, Neuralytix makes the speculative conclusion that a long-term major benefactor of the US-China trade war will be US public cloud providers.

We must repeat again that this speculative conclusion is based on highly speculative assumptions. We also recognize that our speculation is absent from the inclusion of many other influential factors.