Tariff wall: Indian internet gear, cable makers risk missing out on US data centre boom

The rapid expansion of data centers in the United States, driven by the surge in artificial intelligence (AI) applications, has created a lucrative opportunity for companies supplying internet infrastructure components. American firms are awarding contracts worth billions of dollars to build the necessary infrastructure to support AI companies’ growing data needs. However, Indian manufacturers of internet gear and cables are facing significant challenges in capitalizing on this boom due to US tariffs imposed on their products.

Since the introduction of these tariffs under the administration of former President Donald Trump, Indian exporters have experienced a dual setback. On one hand, companies like Sterlite Technologies Ltd (STL) have seen their operating margins narrow, indicating increased costs and reduced profitability. On the other hand, firms such as HFCL Ltd, Polycab Ltd, Havells India Ltd, and RR Kabel Ltd have reported a contraction in exports to the US market. These tariffs have effectively raised the cost of Indian-made internet cables and equipment, making them less competitive compared to local or other international suppliers.

The tariffs have created a 'tariff wall' that disrupts the supply chain for US data center projects. Indian companies, which have traditionally been competitive due to cost advantages and quality manufacturing, are now squeezed by higher duties that erode their price competitiveness. This situation not only impacts their current business but also risks excluding them from future contracts as US companies may prefer to source domestically or from countries with more favorable trade terms.

The broader implications of this trade barrier extend beyond individual companies. The US data center boom is a critical component of the global technology infrastructure, supporting AI development, cloud computing, and internet services. If Indian manufacturers are sidelined, it could slow their growth trajectory and reduce their share in the global market for internet infrastructure components. Additionally, this scenario highlights the complex interplay between trade policies and technological advancement, where protectionist measures can inadvertently hamper innovation ecosystems by limiting access to competitive suppliers.

To navigate these challenges, Indian companies may need to explore alternative markets or invest in local manufacturing within the US to bypass tariffs. Strategic partnerships or joint ventures could also be viable pathways to maintain a presence in the US data center supply chain. Meanwhile, policymakers might consider engaging in trade negotiations to seek tariff relief or exemptions for critical technology components, balancing domestic industry protection with the benefits of global supply chain integration.

In summary, while the US data center expansion driven by AI presents substantial opportunities, Indian internet gear and cable manufacturers face significant hurdles due to tariffs. These trade barriers have narrowed margins, reduced exports, and risk excluding Indian firms from a booming market, underscoring the need for adaptive strategies and policy interventions to sustain their growth and participation in the global technology infrastructure landscape.