Tariff Trouble: Impact of Tariffs on Data Centers

Tariffs and data center development

The US data-center sector faces a variety of trade protectionism issues as it looks to build out and deliver the promise of artificial intelligence.

The US Section 232 review of the electronics sector could raise duties on key components and/or drive firms to localize manufacturing of servers to Mexico or the US. The former faces a challenge from USMCA eligibility.

From a construction perspective, the impact of tariffs on data centers includes imported steel and aluminum products used in data-center buildings and has been widened and increased to include a wider range of these products.

The “reciprocal” duties applied to imports from all countries at a rate of at least 10% will increase the cost of support infrastructure including power components, cooling systems and wiring. 

Looking further ahead, a Section 232 review of the copper sector raises the prospect of increased costs for cabling and power distribution/transformation systems, though both the timing and coverage of the review remains uncertain.

The impact of existing 10% reciprocal tariffs, never mind the potential costs from the electronics and copper Section 232 reviews, are already raising costs for electrical equipment. Market Intelligence forecasts show the price for electrical environmental control and power transformers could increase by 3.2% and 4.5% respectively if built in the US, while imports face higher price rises.

Corporations are expecting an increase in their capital expenditure costs related to tariffs as well as ongoing excess demand for computing equipment.

Tariffs affecting technology industry: Evidence of early sourcing of components

Market Intelligence data analyzing a bucket of goods related to data-center construction shows that in an effort to offset the impact of tariffs on data centers, firms have increased imports dramatically, indicating a front-running of US tariffs. Imports of that bucket in the first quarter increased by 79.6% year over year.

March saw a 33.0% sequential increase from February as companies ramped up purchases when the US administration’s tariff policies become clearer, surpassing the demand driven 49.1% increase seen in the second quarter of 2024.

Market Intelligence forecasts show the impact of tariffs on the electronics industry will result in prices for datacenter-related components rising over the next year. Pricing in the first quarter of 2026 being 5.6% higher year over year for fiber optic cables, used in networking, and 3.6% year over year for chips, while bare PCBs and printed circuit assemblies are expected to increase by 1.5% and 2.3% year over year respectively.

Imports of servers made up 67.5% of the imports in the bucket of goods by value in the first quarter of 2025, increasing by 111.1% year over year.

The impact of tariffs on data centers also includes networking equipment, used for moving data between those servers, made up 27.4% of the total in the first quarter, and increased by 39.4% year over year. Networking equipment may become more important for joining many servers together with high-speed connections if the power of individual servers becomes a bottleneck.

Transformers only made up 0.7% of the value in the datacenter-related bucket, but imports increased by 88.6% year over year, showing a large demand for electrical equipment. Transformers have seen a supply constraint, in part driven by a lack of the specific electrical grade steel needed in their manufacture, and represent critical path items in the construction of a new datacenter.

Ancillary equipment, like coolers, racks and computer power supplies, made up 1.4%, 0.5% and 2.2% of the data-center component bucket in the first quarter respectively, but all saw increases year over year, up 29.9%, 19.4% and 18.9%.

Imports of structural steel, used in the frames of datacenters, saw a decline, down 13.2% year over year, potentially an impact of steel duties enacted in the early weeks of the US administration.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.