The rollercoaster timeline of the Trump Administration’s “will they, won’t they” tariff plans took another turn on April 9 when a 90-day pause on far-reaching tariffs was announced – save for steep duties still leveraged on Chinese goods.
For those working in the data center industry, the threat of higher prices for goods and materials could have a lasting impact on the high-growth sector. The administration has promoted U.S. leadership in AI while also pursuing tariff policies that could affect technology supply chains.
Data center industry players have already been operating under potential tariffs since the administration floated them against Mexico and Canada – two of the country’s biggest trading partners – in February.
Andrew Batson, head of U.S. data center research for JLL, told Data Center Knowledge that tariffs will increase the cost of developing and operating data centers.
“Some of the increased costs may be absorbed through supply chains, some of the increased costs may be absorbed by operators and developers, and some of the increased costs may be passed through to tenants in the form of higher rents,” he explained.
Batson said that while the cancelation of ongoing construction projects due to tariffs is unlikely, the levies may delay some new projects as developers assess their impact, evaluate alternative products that are not subject to tariffs, and communicate any additional costs to tenants.
“Data center demand is thought to be highly inelastic, meaning increased costs will have a limited impact on demand,” Batson said. “The longer-term demand drivers for the sector remain intact, and our general outlook for sector growth remains largely unchanged.”
Rising Costs of Structural Components
Jon Guidroz, senior vice president of commercialization and strategy for Aalo, said if the price of structural steel and critical electrical components climbs, bringing new data center capacity online will be more challenging and more expensive.
“The big question here is how long the tariffs will last and how that maps against the long lead items already ordered,” he explained.
Cory McNeley, managing director of the technology practice at UHY Consulting, agreed that data centers will face significant operational and financial pressures if tariffs remain in effect for a significant duration.
“These tariffs broadly affect materials and technologies essential to the development and operation of data centers such as semiconductors, networking hardware, and cooling systems,” he said.
Rising costs from tariffs on critical components could challenge data center growth. Image: Alamy.
McNeley explained that the impact on operators is twofold: Capital expenditures will increase due to the higher cost of equipment and materials, and operational expenditures could rise if equipment efficiency is compromised by switching to alternative suppliers.
“Additionally, data centers may face margin erosion as they try to stay competitively priced,” he said.
Tariffs can also slow the momentum of new data center construction, with cost volatility directly affecting proposals depending on the components used in the center.
“For example, backup power systems, computing hardware, and HVAC systems can all be impacted by these new tariffs,” McNeley said.
Certain components, including power units or specialized cooling hardware, may face customs bottlenecks resulting in schedule delays.
He added that potential economic and supply chain disruption could also trigger less apparent secondary issues.
For example, there is potential fragmentation within the supply chain, and data center builders could be forced to navigate competing technical standards as U.S. and foreign firms navigate any fresh tariffs.
“Hardware may limit compatibility with certain platforms or emerging AI technology, specifically with emerging chipsets,” McNeley said.
Another potential consequence is the rapid regionalization of data centers in regions where the impact of the tariffs is negligible.
“This could unintentionally create regional data fiefdoms that could complicate service delivery and compliance,” he said.
Uncertainty Unwanted, Data Demand Undaunted
John Dinsdale, chief analyst at Synergy Research Group, noted that if there is one thing that business owners hate, it is uncertainty.
“In many ways, uncertainty is worse than known bad news,” he said. “I have absolutely no doubt that data center operators and associated equipment vendors are taking measures to alleviate any issues that may arise.”
Looking ahead to the data center market forecast, Dinsdale said these large-scale infrastructure businesses require a long-term plan and major upfront investments.
“At this point, I don’t see too many changes to the medium- to long-term prospects,” he said. “The underlying market drivers all remain strong. But there are going to be some road bumps in the short term caused by the uncertainties.”
He added that for operators of existing data centers, power is the major ongoing cost for colocation companies. These cost increases, he noted, will likely be passed on to customers.
Guidroz said the data center market remains highly resilient despite these headwinds due to strong demand from AI, cloud computing, and digital transformation.
He said operators will likely absorb short-term cost increases by adopting innovative sourcing strategies driven by the substantial momentum in digital infrastructure expansion.
“Even before tariffs became a factor, we saw rising interest in nuclear power,” Guidroz added. “An extended tariff scenario will only intensify the power supply challenge.”
McNeley said consumer and commercial demand will continue to grow, and with the increased demand for AI-based services – a trend unlikely to slow down anytime soon – larger service providers, including AWS, Microsoft, and Google, will be able to absorb any short-term costs.
“Currently, I do not see organizations scaling back their technical footprint,” he said. “If anything, there will be a greater demand to scale up remote support and cybersecurity-related initiatives.”
