Donald Trump’s administration has gone all-in on AI: A day after his inauguration, the newly-elected president stood in the White House with OpenAI CEO Sam Altman, Softbank CEO Masayoshi Son and Oracle CEO Larry Ellison, announcing a massive $500 billion investment in AI infrastructure called Project Stargate. Weeks before that, Son joined Trump at Mar-A-Lago to tout a $100 billion investment in U.S. artificial intelligence. And during a global AI summit in Paris in February, Vice President J.D. Vance spoke about U.S. leadership in AI, insisting the administration “plans to keep it that way.”
But with sweeping tariffs announced earlier this week, the White House may be hamstringing the industry it has been so vocal about propping up. While the tariffs exclude semiconductors, the brains of computers and AI, they could drive up the costs of building and operating the vast data centers in which they are housed. Those facilities are crucial to powering the billions of computations that make artificial intelligence possible.
“The vast majority of imported goods that are needed for data centers are subject to these tariffs,” Jason Miller, a professor of supply chain management at Michigan State University, told Forbes. “In my mind, there is no doubt they will raise the cost structure for putting together data centers.”
While the industry could ramp up stateside manufacturing of aluminum and other materials crucial to data center construction, that will be both costly and time consuming — particularly for companies who didn’t have any of this on their roadmaps. And in the fast evolving world of AI, time and speed are crucial. Gavin Baker, chief investment officer at private equity firm Atreides Management, is blunt about what this means for the steep competition between China and the U.S., regardless of the exemption on chips. “Datacenter semiconductors come into America in finished goods from Taiwan and other Asian countries: servers, storage systems and networking switches,” he posted on X. “By the time we have developed the capacity to domestically produce these systems, we will have lost the AI race.”
AI cloud companies are already bracing. Coreweave, which went public last week with a $23 billion valuation, listed the impact of tariffs in the risks section of its S-1 filing. “[I]ncreasing use of tariffs, economic sanctions and export controls has impacted and may in the future impact the availability and cost of GPUs and other components of our platform,” the company wrote. Coreweave declined to comment.
Trump’s tariffs and their impact on the global economy have already made the tech industry wince. The administration hiked tariffs in China, a massive manufacturing hub for Silicon Valley, by 34% (China retaliated with its own 34% tariff). While semiconductors were exempt, the administration levied a 32% tariff in Taiwan, which also exports electronic devices and other components. Vietnam, which had become a popular manufacturing outpost for tech companies looking to become less reliant on Chinese labor, was slammed with duties of 46%. That’s more bad news for Apple, which had been looking to diversify production there. The Chinese tariffs, for example, could spike the company’s costs by $8.5 billion, according to Morgan Stanley, resulting in around a 7% hit on next year’s profits.
The stock market fell to its knees after Trump’s “liberation day” tariff announcement. Stock of major tech companies nosedived with Apple’s shares falling 16% and Nvidia and Tesla both plunging 15%, wiping out billions of dollars from their billionaire CEOs’ wealth. Thursday was one of the worst days for S&P 500 since 2011, with the exception of the Covid-19 pandemic.
Data centers are particularly vulnerable to tariff impacts because their construction relies on raw materials that could spike in cost, said Matt Mittelsteadt, a technology policy fellow at the Cato Institute. That includes steel, aluminum used to partition servers from each other, and power transformers for connecting to the electricity grid (not to be confused with software transformers, the “t” in ChatGPT). “Data centers are very physical objects,” Mittelsteadt said. “With regards to artificial intelligence, as any other sector, this is going to be a huge hit.”
The price of steel, for example, has already risen 30% since Trump took office, as vendors anticipated the looming tariffs. Mittelsteadt did note, however, that rare earth materials like gallium arsenide and tantalum, which are used to manufacture chips but aren’t produced domestically, are on the exemption list.
Daniel Golding, a data center consultant, said the U.S. had been among the cheapest places to build data centers, but the new tariffs are “endangering” that competitive advantage and bring uncertainty to a sector already known for losing money. “AI is not something that is massively profitable so far,” he said. “So the question is: is this going to put sort of a damper on these AI bills that don’t yet have an amazing ROI?”
There’s also open-ended questions about exactly which parts of the datacenter business will be hit. Costs could increase by as much as 10%, Golding estimates, but it’s early to pinpoint exact numbers, he says. Consumers could eventually bear the brunt. “If everything’s more expensive, OpenAI and all of these companies are going to start charging more,” said Mittelsteadt.
Regardless of the cost from the taxes themselves, the larger issue is the environment of instability, said Golding. “It’s less the tariff and more the uncertainty that this could change at any time, totally destroying the financing of a project,” he said. “I think there are going to be a wide variety of unforeseen outcomes from this.”
