How Trump’s trade drama is keeping Indian IT firms on tenterhooks

US President Donald Trump’s tariff tantrums might not be aimed at Indian IT companies, but they are still landing like a rogue cricket ball in the middle of the pitch — startling everyone and slowing the game.The mere threat of tariffs has been enough to chill corporate decision-making. In the first quarter alone, every major Indian IT company had to field questions on the topic. Tata Consultancy Services (TCS) CEO K Krithivasan admitted that the freeze hasn’t thawed: the company has “not seen an improvement in decision-making” and doesn’t expect any until there’s clarity on trade deals — especially with China, a linchpin in the US supply chain.Infosys’s chief financial officer summed it up neatly. “[The] business environment remains uncertain due to lack of resolution on tariffs and geopolitical situation. Clients continue to be cautious in their discretionary spending decisions, reflecting in delayed decision-making,” Jayesh Sanghrajka told analysts last month.The US government’s 90-day extension of its tariff truce with China has done little to speed things up.“Clients are not greenlighting new work yet. Even where there is some discretionary work ongoing, they are asking to extend the timeframe, so the immediate payouts decrease. Everything that is basic and essential is running. But even here there are increasing demands for discounts, and they are asking for more use of automation and AI,” says an Indian IT executive at one of the top three companies.A survey by HfS Research shows just how deep the chill runs: 69% of the 402 US executives polled are in short-term cost-cutting mode, and 83% are turning to AI and automation before even considering reshoring or contract renegotiation.“Several analyst firms are saying that tariffs aren’t impacting IT and business services. On paper, that’s true — there are no direct tariffs on software or IT services exports. But let’s not be naïve. The domino effect is real. When your clients feel the heat, you will feel the burn,” wrote Saurabh Gupta, president of research and advisory at HfS Research, in a LinkedIn post earlier this month.For Indian IT companies, this isn’t about tariffs on code — it’s about tariffs on confidence. And right now, confidence is in short supply. Staying cautiousWhile tariffs haven’t yet taken aim at IT services, Trump’s unpredictable moves are stirring up awkward client conversations — the kind where nobody wants to say “what if”, but everyone’s thinking it.“Some service providers are saying that their clients are asking about options if Trump puts tariffs on services. At this point, there is a non-zero chance,” says IT industry analyst Pareekh Jain.In quieter times, optics might be a footnote. But when geopolitical tension is running high, perception can be everything. Trump has already taken public swipes at companies like Google and Microsoft for laying off workers in the US while hiring in India.“Presently, clients are concerned about optics. You will see announcements of new GCCs (global capability centres) slow down because you can’t be seen to be firing in the US and hiring in India. There will be caution about announcing it, but that doesn’t mean that investments will stop,” says Jain.Industry takeFew believe Trump will actually slap tariffs on services — but with his appetite for unconventional moves, no one is ruling it out.“Tariffs on services are mutually assured destruction. Just as it is hard to cut China out of manufacturing, it is virtually impossible to cut India out of services. Where could you shift the work at that scale? Some work will move to Vietnam or other Southeast Asian countries. But the increased costs will push companies to ask for cuts, more automation,” says the IT services executive quoted above.According to a November 2024 report from Deutsche Bank, Vietnam, Malaysia and the Philippines are emerging as key alternative GCC hubs in Southeast Asia.For now, Indian IT’s problem isn’t a tariff — it’s a ticking time bomb, and everyone’s watching to see if Trump decides to set it off.