Facing the new global trade realities – plus ça change?!

These are unprecedented times. On 2 April 2025, President Donald Trump announced a comprehensive tariff strategy that includes a base rate of 10% on all US imports and higher, country-specific tariffs, notably a 20% tariff on goods from the European Union. For offshore locations like India (26%), Vietnam (46%), and China, a whopping 54%. These measures are scheduled to take effect at the beginning of April 2025.  It was also confirmed that further US tariffs were planned on some sectors, including semiconductors, pharmaceuticals, and critical mineral imports. What had been announced before Liberation Day, as the Trump administration euphemistically called the tariff impositions, is a 25% tariff on all cars imported to the US, with a similar tariff on car parts, which is expected to follow in May. Furthermore, there is a 25% tariff on all steel and aluminum imports to the US. “Plus, ça change” is a French phrase, often shortened and used in English, meaning “the more things change, the more they stay the same.” The fundamental question is, what does that announcement mean for IT Services in general and the European market in particular? Do organizations have to plan for wholesome changes, or will the fundamentals stay the same?

PAC suggests reading the announcement in the following context: The global economy is entering a phase of asymmetrical policy decision-making. We are pivoting from a consensus on multilateral agreements toward national priorities and protectionism. Yet, the root cause of this policy is trade balances and US domestic politics – not tariffs. Also, Donald Trump is desperate to close a deal for a U.S.-based buyer to purchase TikTok. He was so desperate that he proposed giving China relief on tariffs if its government approved an agreement.  Should a full-blown trade war escalate, a European digital tax levied on US hyperscalers, ISVS, and media platforms could become the frontier. The outcomes of such a scenario are difficult to gauge. Another important indicator is that the financial market responded strongly negatively, especially in Asia and the US.  For PAC, the central question is whether this could escalate into the broader disruption of global trade governed by agreed-upon norms and institutions, like the WTO, IMF, or World Bank, as well as international standards for tariffs, subsidies, and dispute resolution. Let’s collectively breathe out; we are not yet at this juncture.

Nevertheless, these tariffs will likely significantly impact European industry, particularly those heavily involved in transatlantic trade. Manufacturing, automotive, and chemical sectors could face higher costs and reduced competitiveness in the US market. This economic strain will likely impact their IT spending behavior and ability, potentially leading to budget re-evaluation and project prioritization.

In response to these challenges, European companies will prioritize IT services that increase efficiency, reduce operating costs, and strengthen competitiveness. For those dreaming that Agentic AI will fill the void of any disruption, we believe those folks need to look at the current approaches’ lack of stability and scalability. However, efficiency gains will be high on the agenda for organizations to face the headwinds. This includes an increased demand for consulting services to optimize costs, managed services to streamline operations, and cyber security solutions to protect digital assets. Conversely, non-essential IT projects or those with extended payback periods may be postponed or scaled back.

Furthermore, the announcement has prompted the European Union to consider countermeasures, potentially leading to a reciprocal tariff environment. Such developments could further influence IT service strategies as companies navigate an increasingly complex trade environment. Major economies like China, which are crucial for global supply chains, have already announced retaliatory tariffs of 34% of all goods exported by the US, indicating that escalation appears unavoidable.

Over the past week, PAC spoke with European enterprises across various industries, and each said their organization’s immediate concern is the impact on their core business rather than IT. Of course, there is an impact on technology, though. The investments made with US software companies are based on existing budgets and often on multi-year license agreements, even consumption-based contracts. There are no immediate plans to change suppliers, but all senior leaders spoken with, both LoB and IT, are asking their teams to make plans should a move away from or reduce the use of US software firms be necessary. If anything, the rise of LLMs leads to more demand from the Hyperscalers. This accelerates cloud, data, and AI sovereign strategy creation for some. However, all are deeply integrated with ecosystem platforms like Salesforce and ServiceNow, as well as MS and AWS for computing, so migrating away from them would require more cost than the perceived immediate impact of tariffs for existing deployments.

However, for all those spoken with, the need to determine their need for sovereign AI and data approaches is accelerating, as AI is currently the most widely invested area regarding IT budgets. Also, all firms are refactoring with a non-US provider/s option for IT-related projects that have yet to start but are planned to start this year. All senior leaders are waiting to see if the US will roll back the tariff decision in the short term based on the economic and political consequences and how the UK government will address the situation in the coming months. If the overwhelming consensus over the next couple of months is a long-term impact, then the first conversations will be with the US-based software firms to see what they will do to minimize the pain. Should that not be enough, migration strategies will be activated based on the current plan being created/adjusted.

PAC would argue that most European companies had already expected such decisions, even if the tariff level had not been apparent until April 2nd. So, most companies have already integrated the risk into their strategy and concrete planning (also for IT) for the coming months. However, we also know of anecdotal evidence of organizations only anticipating the risk – especially the automotive industry – completely stopping up and running projects and sending buses of external consultants home overnight. Thus, the reaction now might not be as heavy as many expected.

Here are the main implications for the IT Services market that PAC expects:

• PAC doesn’t expect a collapse of the global IT Service market but a delay in recovery.
• High tariffs imposed on China following “Liberation Day” are likely to have ripple effects on the worldwide economy and, of course, on the EU.
• We believe most companies have already integrated the risk into their strategy and concrete planning.
• Delivery model realignment raises costs: As offshoring practices come under political and public scrutiny, firms must hire IT resources locally.
• It will further accelerate automation, AgenticAI, and de-risking delivery capabilities/locations. Conversely, innovation projects risk being pushed on the back burner.
• Margins will come under increased pressure, at least for a transition period, as many organizations face market uncertainty.

In summary, the newly announced US tariffs will reshape the economic environment for European industry, leading to a strategic shift in IT services investments towards solutions that provide immediate efficiency and cost savings. However, given the current White House administration dynamics, neither IT users nor IT service providers should panic. In two weeks, the situation could be completely different. However, this does not make projects that increase efficiency and save costs nonsensical. But here comes the health warning: those changes will take time. Take the acknowledgment of European leaders that their economy’s dependence – if not addiction – on U.S. technology and services raises urgent questions: What will happen if tariffs increase my costs on April 10th? How quickly can I transition to European or independent vendors with the same functions and features to avoid the tariff war? Are there any European vendors offering comparable services at the same price? If so, where can I find them? And much will change during that time. Sadly, there are not many positive answers to those questions. With that, it is literally plus change!

What does this mean for your company? Get in touch with us and let’s arrange a meeting with our analysts.