The years 2023-2024 kept markets busy in geopolitical conflicts. Predominantly leading supply chain disruptions and rising inflation rates. It drove fear of recession while muting expenditures and investments across industries, markets, and economies. The upside was the strong fundamentals of industries. The hype cycle of AI-led growth was also notable. Additionally, tolerant trade policies and relationships contributed positively. Earnings from bellwethers remained strong. There were decent employment opportunities and consumer sentiments were not so frigid.

With 2025 and the liberation day (April 2^nd) announcing sweeping tariffs, some GDP operating fundamentals will clearly shift. These changes will potentially affect all axes of consumption (C), investments (I), government spending (G), imports (I), and exports (E).

During recent industry inquiries, we engaged with CIOs and Technology business leaders. We examined the impacts on the technology-led lens of GDP. It seemed prudent to write about foreseeable segments of attention. We also considered possible impacts and responses. Lastly, we focused on mitigation that leaders (Enterprise CIOs and Tech Services leaders) should prepare for.

Note, that I am not focusing on technology from a consumer goods perspective. This means companies like Apple and Microsoft, or social media led sales from Alphabet and Meta. Instead, I am focusing on purely B2B technology services companies. These companies provide IT consulting, advisory, modernization, transformation, implementation, managed services, and business process operations. They work across Applications, Cloud, Infra, Data Centre, Cybersecurity, Data and AI. Their goal is to support the CIO or COO organization of an enterprise.

Although the GDP Consumption (C) is anticipated to go down as the consumer confidence slid 7.2 points this month to a reading of 92.9, we may not be able to numerically extrapolate that to Technology Services industry on the buckets mentioned above?

Government spending (G) is clearly being cut; but the actual execution and impact of it is still vague. Will that cost savings be redirected into investments (I)? In that case, the I and G will balance. This will spur some growth propensity. But if the savings are diverted to manage deficits and influence currency factors, liquidity will leave the system. This could impact growth driven by technology investments.

Import and Export will clearly be adversely impacted by tariffs. But does that include technology services which is predominantly driven by human capital? Good part is human capital has not yet been named as part of Tariff?

But what if there is a Tariff on human capital (knowledge immigrants)? Technology Service providers can absorb the increase and take a hit at their bottom line. Alternatively, it might be passed on as increases to the rate card, impacting tech services COGS. This could lead to CIO consumption tapering or trigger hostile price wars among tech service players, driving prices down. Employees might experience a reduction in payouts and benefits. This reduction could lead to another unrest in talent management. It may increase churns and cause unpredictability of contractual commitments. There could be a drop in productivity. Eventually, this might raise costs due to a reduction in quality.

So how will all this impact tech investment:

1. Will it be confined to the public sector, which is seeing less modernization? Or will enterprises across the board cease modernization and strive to maintain a balance being human-driven?
2. If it remains human driven, then how will investors react to AI / Gen-AI hype cycle stocks and industry projections?
3. Remember all AI investments will fetch positive cash flows in a multi-year forward looking journey. So, will the AI / Gen-AI / Agentic AI / Copilot driven investments be curtailed?
4. Will the entire industry shift towards less compliance and regulatory needs and cutting down on compliance and control costs?
5. Will cyber attackers become philanthropists? If that happens, will all these Zero trust, SASE, MDR, Posture management, Threat intelligence, and modeling efforts be wasted? Will they no longer be useful or relevant?
6. Will consumers and tech users, become empathetic to curtailed investments and demand less user-centric, performing applications? Well, if salvation were to descend into mortals!!

Let us remember that the reinvestment component of the earnings is what drives growth and markets. If the earnings are at stake because of reduced technology-led productivity, cost savings also decrease. Consequently, the incremental reinvestment gets impacted. Growth dries up. The market becomes cyclically self-punitive.  

My cheat-sheet of the government policies and externalities:

Managing the impact: Enterprise CIOs vs Tech Service Leader

Some or all of these impacts could apply to the tech services firm. They might also be relevant to the enterprise CIO. We can discuss and define mitigation and hedging of it based on CIO priorities and context

If the new world of trade re-balancing or unbalancing were to be transitory, the article might not have needed attention. It would not require incorporation by world leaders. But it might well be the start of the new normal and breaking the status quo of one-sided tariffs. Measuring how the other side was rewarded by one-sided tariffs might be difficult. It could also be purely anecdotal thus far!! But the sooner we start preparing our “Technology Business” in accordance, the more rightfully we will be prepared. We will be ready to brace the impact.