By Nitin Bhatt & Jignesh Thakkar, Respectively technology sector leader and leader, global compliance solutions, EY India
The tariff war declared recently by US President Donald Trump is being seen by many pundits as the first step of a broader effort to fix global trade imbalances and bring “displaced” manufacturing jobs back to the US.
Internal policy drafts, including a February memo from the Trump cabinet, suggest that future actions may target digital services, cross-border data flows, and immigration policy, which could potentially reshape the global information technology (IT) services market.
Although India’s $280-billion technology sector is currently not directly impacted by the tariffs, the knock-on effects could be significant. American companies that are major consumers of IT services are expected to experience economic stress over the next several quarters.
This may result in budget cuts, contract renegotiations, and even degrowth in some verticals.For instance, the financial services sector is highly sensitive to economic shocks. As tariffs strain local businesses and credit markets, banks and insurers may delay or cancel outsourcing deals.
High input costs and uncertain delivery timelines will likely impact the IT budgets of high-tech companies as well. With nearly 90% of its supply chain reliant on imports from countries such as China, Taiwan, and India, this sector is likely to experience severe disruption. Similarly, manufacturing, retail, and consumer-facing industries may also curtail IT spends, given revenue and margin pressures.
While goods — not services — are the current focus of Trump’s “reshoring” initiative, some analysts believe that the administration may be laying the groundwork for digital protectionism. For instance, the US Trade Representative is currently reviewing foreign digital services tax regimes under Section 301 of the 1974 US Trade Act. This could result in the introduction of reciprocal taxes on offshore IT services, impacting the competitiveness of Indian firms.
Further, proposals to raise H-1B and L-1 visa fees, reduce quotas, and enforce local hiring are under active consideration. Enhanced scrutiny and compliance checks during visa renewals may further limit workforce mobility, undermining cost structures and operational flexibility for Indian IT firms.
Finally, emerging data localisation requirements may necessitate Indian IT providers to host and process US data within American borders. This would require significant investment in localised infrastructure or partnerships with domestic providers, altering the offshore delivery model and driving up capital expenditure.
To remain competitive, Indian IT companies must focus on the following priorities. AI-led growth: Faced with the prospects of a global economic slowdown and sluggish demand environment, American companies will accelerate the adoption of artificial intelligence (AI) to reduce costs and enhance efficiency. This field of play will offer new revenue pools for tech companies. The ability to deploy domain-specific AI solutions and platforms as well as offer creative financial engineering and risk-sharing approaches with front-loaded benefits will be key to winning such deals.
Onshore expansion: Acquiring US firms — especially in regulated sectors like healthcare and financial services — can enhance local credibility and revenue momentum. Increased domestic hiring and infrastructure investment will also help companies meet potential localisation mandates.
Nearshore delivery: Expanding nearshore capabilities in regions such as Canada, Mexico, and Latin America will be crucial. Alongside, tech services companies must improve execution costs through AI-led delivery transformation to enhance competitiveness.
Talent strategy: Reassessing the effectiveness of existing mobility programmes will be critical — not only from an efficiency standpoint but also to ensure compliance. With an estimated 30% to 50% of the US workforce in the IT sector being visa-dependent, companies face heightened risks amid tightening immigration regulations and increased enforcement activity.
Even minor lapses in work authorisation documentation, such as errors in Form I-9, can result in severe penalties and sanctions. In addition, companies must re-evaluate their on-site talent strategies — including lateral hires, campus recruits, and subcontracted local workers — as many of these roles may involve visa categories such as H-1B transfers, H-4 Employment Authorization Documents, and F-1 Optional Practical Training holders.
Diversification: Over-reliance on the US market needs a rethink. Indian companies should aggressively grow their presence in Japan, member states of the Association of Southeast Asian Nations, West Asia, and Europe. Local delivery hubs in these regions can mitigate geopolitical and regulatory risks.
As the Trump administration explores tariff and non-tariff tools to bring jobs back to the US, Indian IT faces a pivotal moment. Firms that can rapidly reinvent themselves will not just survive; they will also emerge as leaders in a new era marked by techno-nationalism and digital sovereignty.
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