How Big Tech is paying its way out of Trump's tariffs

CNBC

3 hours ago

Top tech executives are at the forefront of a recent swathe of unprecedented deals with U.S. President Donald Trump.
In just the last few days, the White House confirmed that two U.S. chipmakers, Nvidia and AMD, would be allowed to sell advanced chips to China in exchange for the U.S. government receiving a 15% cut of their revenues in the Asian country.
Apple CEO Tim Cook, meanwhile, recently announced plans to increase the firm's U.S. investment commitment to $600 billion over the next four years. The move was widely seen as a bid to get the tech giant out of Trump's crosshairs on tariffs — and appears to have worked for now.
Altogether, analysts say the deals show just how important it is for the world's largest companies to find some tariff relief.
"The flurry of deal-making is an effort to secure lighter treatment from tariffs," Paolo Pescatore, technology analyst at PP Foresight, told CNBC by email.
"In some shape or form, all of the big tech companies have been negatively impacted by tariffs. They can ill afford to fork out on millions of dollars in additional fees that will further dent profits as underlined by recent quarterly earnings," Pescatore said.
While the devil will be in the detail of these agreements, Pescatore said that Apple leading the way with its accelerated U.S. investment will likely trigger "a domino effect" within the industry.
Apple, for its part, has long been regarded as one of the Big Tech firms most vulnerable to simmering trade tensions between the U.S. and China.
Earlier this month, Trump announced plans to impose a 100% tariff on imports of semiconductors and chips, albeit with an exemption for firms that are "building in the United States."
Apple, which relies on hundreds of different chips for its devices and incurred $800 million in tariff costs in the June quarter, is among the firms exempt from the proposed tariffs.
The Nvidia and AMD deal with the Trump administration has meanwhile sparked intense debate over the potential impact on the chip giants' businesses and whether the U.S. government may seek out similar agreements with other firms.
Some strategists described the arrangement as a "shakedown," while others suggested it may even be unconstitutional and comparing it to a tax on exports.
White House Spokesperson Karoline Leavitt said Tuesday that the legality and mechanics of the 15% export tax on Nvidia and AMD were "still being ironed out." She also hinted deals of this kind could expand to other companies in future.
Ray Wang, founder and chairman of Constellation Research, described the Nvidia and AMD deal to pay 15% of China chip sales revenues to the U.S. government as "bizarre."
Speaking to CNBC's "Squawk Box" on Monday, Wang said what is "really weird" is there is still some uncertainty over whether these chips represent a national security issue.
"If the answer is no, fine OK. The government is taking a cut out of it," Wang said. "Both Nvidia's Jensen Huang and Lisa Su at AMD both decided that OK, we've got a way to get our chips into China and maybe there is something good coming out of it."
While investors initially welcomed the deal as broadly positive for both Nvidia and AMD, which once more secure access to the Chinese market, Wang said some in the industry will nevertheless be concerned.
"As an investor, you're worried because then, is this an arbitrary decision by the government? Does every president get to play kingmaker in terms of these deals?" Wang said.
"So, I think that's really what the concern is, and we still have additional tariffs and trade deals to come from the China negotiations," he added.
Looking ahead, Dan Niles, founder and portfolio manager at Niles Investment Management, said the question for investors is whether the Trump administration's "hands-on" approach is positive or negative for U.S. companies.
"I think for each company, it is very different. So, it certainly it is something I take into account. The bigger thing for me is do you have some stability of policy? Do you have a policy one week and then it flips the next?" Niles told CNBC's "Closing Bell: Overtime" on Monday. "Right now, that is what concerns me a little bit more."