Advanced Technology Market Trends Q2 2025

Tariffs and Advanced Manufacturing: Cost Pressure & Policy Fallout

The recent wave of U.S. tariffs—particularly on imported steel, aluminum, and electronics—has created significant headwinds for the advanced manufacturing sector. Tariffs have sharply increased the cost of raw materials used in sectors like semiconductor fabrication, aerospace, and clean energy. These rising costs are eroding already thin profit margins and forcing many companies to reconsider or delay capital investments. While designed to protect domestic manufacturing, industry groups like the National Association of Manufacturers warn that tariffs are having the opposite effect—undermining U.S. competitiveness, delaying major projects, and disrupting construction supply chains.

According to the U.S. International Trade Commission, Section 301 tariffs led to a 70% drop in semiconductor imports, while U.S. production rose only 1.2%, highlighting the current limits of domestic capacity expansion.

Supply Chain Strategy Shifts: Reshoring and Regionalization

Tariff uncertainty and global disruptions are prompting companies to reevaluate supply chain strategies. Manufacturers are investing in reshoring, stockpiling domestic inventory, and choosing site locations that minimize exposure to foreign dependencies. Nvidia’s investment in a Texas-based AI supercomputer manufacturing facility is a prime example of this regionalization trend. However, these shifts come at a high cost. While reshoring can offer long-term resilience, the near-term consequences include increased overhead, capital strain, and workforce demands that challenge both owners and builders.

Economic Impacts and Project Disruption

The broader economic effects of tariffs are becoming more visible. The Tax Foundation estimates long-term U.S. GDP reductions of up to 1% due to tariffs and retaliatory measures. Some steel-related jobs now cost the economy up to $650,000 per job preserved. These conditions are leading to rising consumer prices, stalling innovation, and prompting companies to pause or cancel major manufacturing and construction projects—particularly those initially backed by government funding.

Near-Term Strain, Long-Term Opportunity

While the short-term outlook includes rising construction costs, delayed projects, and fluctuating government incentives, there is still optimism. Strategic investments in workforce development, infrastructure resilience, and domestic manufacturing capacity can position the U.S. for growth. The CHIPS Act and other federal programs may catalyze long-term benefits, but near-term pain from supply chain instability and funding uncertainty will continue to challenge project delivery.

Tariffs and Data Center Construction: Rising Costs but Still Pressing Forward

We’re not seeing delays directly due to tariffs. However, the rising costs seem to cause brief hesitations to overcome while launching projects which are compounding the challenges of meeting aggressive delivery schedules, where speed-to-market is critical.

Energy Infrastructure Strain: A Compounding Challenge

The tariff whiplash is only amplifying pre-existing challenges related to energy availability. Reliable and timely delivery of power infrastructure—such as transformers, generators, substations, and switchgear—has become more difficult, leading to potential delays and deterring new investments in high-growth areas.

Global Supply Chain Disruption: IT Hardware and Equipment

Tariffs are not only affecting domestic construction materials but are also disrupting the global supply chain for essential data center equipment. Foreign manufacturers of critical components—including electrical gear, racks, servers, and cooling systems—are facing higher export costs, which are being passed down the line. These disruptions are causing delays in hardware availability and forcing operators to reevaluate their IT equipment refresh cycles. The global interdependence of data center supply chains means that these challenges ripple through the industry far beyond U.S. borders.

Strategic Response: Rethinking Site Selections and Procurement

In response to these pressures and dynamics out of any one’s control, data center operators and developers continue to pursue multiple sites, energy solutions and suppliers for diversification. Some are choosing to shift site selection toward regions with more stable energy infrastructure or lower construction input costs. Others continue to pursue remote locations with alternative power source variations other than the utility grid that may take 2-4 years for fruition. Others are focused on increasing domestic sourcing, engaging in early procurement for long-lead items, or leveraging prefabrication to mitigate risk. While these changes can offer resilience, they often require additional planning, cost, and schedule considerations in an already constrained labor and material environment.