Government

INSIGHTS

A Trade War in the Cloud?

So far, the looming trade war is limited to actions and reactions related to durable things that trade throughout the global economy — cars, steel and aluminum, for instance. Will that remain the battleground? Or should we expect greater contentiousness around services — specifically, Software as a Service, and CRM in particular?

Retaliation for U.S. trade initiatives so far has been aimed at things produced by Trump-leaning industries and states, like motorcycles, soybeans and bourbon whiskey. However, those industries and their workers might not provide the leverage that other nations need to put the genie back in the bottle.

Some workers who make bourbon and motorcycles are vocal about their politics and form part of the Trump base. However, their actions seem limited mostly to reactions, not initiative. They’ll support a Trump policy, but they haven’t been out front advocating.

Looking for Leverage

On the other side of the coin — and I accept that this is a simplification — the tech sector is by definition entrepreneurial, and able and willing to initiate action. So, any attack on subscription providers by foreign nations could, in theory, motivate more reaction designed to stop the trade war.

There’s a lot of potential leverage there, because the U.S. has a dominant share of the Software as a Service economy and the subscription economy generally. While U.S. companies have been stepping up efforts to locate cloud data centers in many countries to support data residency requirements, their services still could look like imported services and thus be subject to tariffing.

The tech sector is also vociferous — both pro and con on numerous political issues. For every Marc Benioff advocating for progressive ideas, there’s a Peter Thiel supporting the administration. However, the progressives might have the numbers, if only because so much of the industry is based in California. So there’s all the more reason for foreign governments looking for leverage against American tariffs to target the tech sector and especially software.

Permanent Alteration

U.S. dominance in SaaS and the cloud generally is a double-edged sword. U.S. companies have dominant positions, but for this reason it would be easy to target the industry with, say, 50 percent tariffs. As with other industries, tariffs could be expected to slow growth and adoption, and possibly cause some vendors to set up production in other countries, as Harley-Davidson is doing.

Once a path is set and investment is made, the shape of any industry could be altered permanently. It will be hard for any business to abandon sunk costs in other lands once a trade truce is agreed to. So we’re possibly looking at a generational or even secular shift in the shape of the cloud and its industries should a trade war infect tech.

A trade war could be a driving force that sends clouds scattering to the corners of the Earth. That could be good for some businesses, but bad for individuals whose jobs would be put in jeopardy. It would be an acceleration of the natural commoditization cycle with one key difference. There wouldn’t be many new job openings for displaced American tech workers whose jobs departed for parts unknown.

Last word

When the idea of a trade war first surfaced about a year ago, some prescient commentators suggested that there likely would be unforeseen consequences. No one has perfect visibility into the heart or actions of an adversary, regardless of the analytics used.

However, retaliating against what an adversary does well is an old story, and it wouldn’t surprise me to see tariffs on cloud computing services should cooler heads not prevail. Those tariffs will have follow-on effects that we can only guess at right now, but it’s doubtful that those actions will improve the U.S.’ standing in tech.

The opinions expressed in this article are those of the author and do not necessarily reflect the views of ECT News Network.

Denis Pombriant

Denis Pombriant is a well-known CRM industry analyst, strategist, writer and speaker. His new book, You Can't Buy Customer Loyalty, But You Can Earn It, is now available on Amazon. His 2015 book, Solve for the Customer, is also available there. Email Denis.

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