The global data centre market has faced considerable challenges over the past five years, with both the COVID-19 pandemic and the war in Ukraine bringing changes that the industry had to adapt to. And now, new set tariffs by the US Government have threatened further disruption through global trade markets.

Not only this, but recent announcements in the press from Microsoft (MSFT) and Amazon (AWS) about potential investment revokes have introduced a further feeling of unease. Recognised as major self-builders and end-users, decisions like these reverberate across the entire data centre ecosystem. However, in uncertain times, what matters is understanding potential impacts and, more critically, how they could be effectively mitigated.

Current market overview

In April, the US government announced a sweeping set of tariffs on a wide range of imported goods but, following strong international backlash, has paused their implementation for 90 days (5 April to 10 July). To note, during this period a minimum of 10 per cent has been introduced on goods imported from all countries, including close allies such as the UK and EU. More strikingly, the rate for imports from China originally surged up to 125 per cent before lowering to 30 per cent following talks between China and the US. On 31 May, the US government also doubled its current tariff rate on steel and aluminium imports from 25 per cent to 50 per cent, although the UK has been temporarily exempted from the tariff increase but a levy remains at 25 per cent.

Ambiguity remains beyond the current standstill period as individual countries continue to negotiate bespoke trade agreements with the US. In the short term, the pause may bring some much-needed stability, regardless of the expected price hike once the window closes. Combine this with the weakening dollar against the euro, there is a potential for European markets rendering less attractive to those US-based investors.

Even at time of publication, the International Trade Court has blocked the implementation of tariffs announced by the US Government (albeit imports on steel and aluminium are not affected by this ruling). As a result, this is likely to end up being appealed and continues the theme of uncertainty and ambiguity in the market.

In March, MSFT announced a reduction of 2GW in leased data centre capacity globally. The decision was attributed to the company’s efforts to monetise artificial intelligence (AI) and reassess its development pipeline in line with shifting demand. Interestingly, just two months later, they reversed course by announcing plans to expand capacity within the EU by 40 per cent over the next two years. Similarly, in April, AWS reportedly paused certain lease agreements, further reinforcing the sense of a market recalibration.

Adding to the complexity is the recent emergence of DeepSeek AI, a new player offering an AI solution that is both faster and more cost-effective than existing models like ChatGPT and Gemini, causing many established players and investors to pause and reassess their market positions. Some experts in the sector have suggested that it might lead to a change in the AI research market, as innovation may no longer only be accessible to the biggest companies but instead come from a variety of places.

Impact on the sector

These newly introduced tariffs are expected to impact the cost of key construction materials such as steel, aluminium, and copper which are all incredibly essential to the sector. Inevitably, such increases will be passed along the value chain, first to developers and ultimately to end-users. We are already seeing many working to extremely tight timelines, driven by rising demand for digital infrastructure, so any additional pressure could easily delay or extend projects.

Early design or pre-construction projects are particularly vulnerable, considering these budgets are often subject to protraction. In tandem, owner furnished, contractor installed (OFCI) items, such as generators, transformers and cooling systems, are likely to be affected due to the international complexity of their supply chains. Many original equipment manufacturers are based in the US; therefore, direct tariff application will influence export pricing. Even when final assembly occurs in the EU, key components are frequently sourced from third countries, including the US, making them specifically susceptible to these disruptions.

Historical events have shown that macroeconomic shocks can inject concern into supply chains, resulting in reluctancy to commit to fixed pricing. Where this has occurred, we have seen clients more compelled to explore alternative contracting models to achieve cost certainty, both for in-house planning purposes and to deliver on external promises. These supply pressures could interfere with already established procurement cycles, slow down hardware acquisition and delay the deployment of infrastructure. At a time when demands for digital services are only accelerating, this introduces another dilemma for many stakeholders needing to rethink their sourcing strategy.

To counteract this, every layer of the supply chain must assess supplier composition and location. By ensuring diversification across both vendors and geographies, businesses can create more resilient operations that are less exposed to future bottlenecks.

Impact on hardware development

The hardware sector is particularly affected by the current tariffs, as many end products are imported from the very countries now facing steep trade penalties. Semiconductors, in particular, are vital, enabling the functionality of everything from standard servers to high performance computing systems.

These discussed impositions could significantly accelerate the price of high-performance hardware, components that are already sought after thanks to the global AI infrastructure boom. In turn, this could exacerbate ongoing shortages of graphics processing units (GPUs), amongst others, hindering the timely rollout of intelligence services. Sectors relying on this (ranging from autonomous vehicles, machine learning, to cloud gaming) may find themselves especially vulnerable.

Impact on market dynamics

As prices rise, it is inevitable that contractors will pass these costs on to developers which may impact the cost per megawatt for projects. While well capitalised hyperscalers and established co-location operators could absorb these increases, newer market entrants and SMEs may find themselves facing higher lease costs and cloud service fees.

That said, previous lessons learned are proof that periods of uncertainty often present opportunities for those prepared to take calculated risks. If willing to secure land and prepare sites for power and infrastructure, even in the absence of confirmed end users, there is a likely chance for a stronger position once the market settles.

How can this situation be mitigated?

Although we have discussed uncertainty as a key theme, we can focus on the known variables: the existence of tariffs and the potential for price hikes. Working proactively, encouraging open conversations around procurement strategy and risk ownership, whatever the construction phase, is essential. Prioritising detailed supply chain reviews and identifying vulnerabilities, followed by updates to risk management frameworks.

For projects that are still in the procurement phase, clarity around responsibilities must be established. This requires a review of contract terms to address new governmental regulations, ensuring all parties understand the allocation of risk. In particular, international commercial terms (INCOTERMS), should be revisited, as these outline customs clearance liabilities and duties for deliveries. In most cases, buyers prefer to push these risks onto sellers by requesting terms such as delivered duty pay (DDP) or delivered at place (DAP). Yet, given the current volatility, there will be expected demand for greater transparency around how these costs are calculated.

During the current 90-day pause, early delivery, sourcing alternatives or consideration on whether certain materials can be purchased and delivered to site ahead of time is worth considering, even if not immediately required. Although this may result in additional short-term storage costs, these expenses will be negligible compared to that of extended preliminaries or postponed handovers due to delayed equipment deliveries.

Above all, clarity is key. Open dialogue and collaborative working will reduce overall impact.

Conclusion

While the long-term implications are still unknown, we all have imminent decisions to make. Whether these changes are short-lived or indicative of a broader shift in global trade dynamics, the ability to adapt and respond is essential. Companies who navigate this transition effectively will play a pivotal role in shaping the future of the sector.