WSJ Tech News Briefing: Small Tech Faces Tariffs Squeeze
Released April 29, 2025

The latest episode of WSJ Tech News Briefing delves into the challenges small tech companies are encountering due to evolving tariff policies. Hosted by Victoria Craig, the episode navigates through significant developments, including IBM's substantial investment in the U.S., the repercussions of tariff adjustments on small tech enterprises, and the strategic maneuvers these companies are adopting to sustain their operations.

1. IBM’s Strategic Investment and AI Ambitions

The episode opens with a discussion about IBM's announcement to invest $150 billion over the next five years to enhance its manufacturing and research and development (R&D) capabilities in the United States. This move comes at a pivotal time as IBM strives to solidify its position in the competitive artificial intelligence (AI) landscape, especially in the face of President Trump's tariffs that threaten to escalate the costs of international manufacturing.

Asa Fitch, WSJ’s "Heard on the Street" columnist, provides an in-depth analysis of IBM's historical and current stance on AI:

“When I hear the name IBM, I don't necessarily think of artificial intelligence. It's not a company we hear often listed amongst the likes of OpenAI and Nvidia.”
[02:14]

He further explores IBM's foundational work in AI, referencing landmark achievements like Watson's victory on Jeopardy and Deep Blue's win against Garret Kasparov. However, Fitch notes that IBM hasn't been in the limelight during the recent AI boom, primarily because the company's AI efforts have been more behind-the-scenes, focusing on corporate applications rather than consumer-facing technologies.

Under the leadership of CEO Arvind Krishna, who took the helm in 2020, IBM has pivoted its AI strategy to be more agnostic and facilitative. As Fitch explains:

“IBM under Krishna has become more of a facilitator of what companies want to do and a lot more agnostic about which company they choose or which service they choose.”
[03:43]

This strategic shift aims to align IBM more closely with diverse corporate IT needs, offering consulting services that help businesses integrate AI in a manner that best suits their unique requirements. However, Fitch raises a critical concern about the sustainability of IBM's AI consulting business:

“There's a possibility that AI evolves in such a way that companies don't need quite as much help doing it. And if companies don't need as much help doing it in the Future, that limits IBM's ability to keep growing that business.”
[04:48]

2. Tariff Exemptions and Their Fallout for Small Tech Firms

Switching gears, the episode examines the impact of tariff policies on the tech industry, particularly focusing on how recent changes are squeezing small tech companies. While big players like Apple and Nvidia have secured exemptions from the Trump administration's tariffs on Chinese imports—keeping products like laptops, cell phones, and smartwatches free from higher import taxes—the expiration of the de minimis provision (which exempted items sold for $800 or less) on May 2 poses significant challenges for smaller companies.

Nicole Nguyen, a WSJ personal tech columnist, breaks down the implications:

“A lot of what consumers are purchasing today, that's inventory that was purchased pre tariff so consumers won't see rising prices immediately.”
[06:51]

She elaborates on the strategies small companies are employing to navigate the impending tariff increases:

“Companies are going to have to face emptier shelves or ingest that inventory from abroad and pay tariffs. Should it be after the 90 day pause if it's outside of China? Or pay the 145% tariff levied on Chinese goods and raise prices for consumers if they can't absorb that themselves.”
[07:31]

3. Strategic Responses: Subscription Models and Supply Chain Adjustments

To mitigate the financial strain from increased tariffs and supply chain disruptions, small tech firms are adopting various strategies:

• Bonded Warehousing: Companies like Flaus, which manufactures electric flossers with intricate components assembled in China, are considering storing finished goods in the U.S. through bonded warehousing. This approach allows them to defer customs payments, providing temporary relief while hoping for potential tariff reductions.

“She's hoping very desperately that the tariffs will come down. And that's the bet that she's making. But it's a risky one.”
[07:43]

• Diversifying Supply Chains: The shift away from China to other countries like Vietnam has led to increased shipping costs, with some companies facing a 25% rise in expenses just a week before the episode aired. This surge is attributed to a rush of importers adjusting their supply chains under the 90-day pause.

“That rush has caused shipping prices to increase. One company I spoke to said that their prices from Vietnam went up 25% last week.”
[08:36]

• Adopting Subscription Models: To ensure steady revenue streams amidst fluctuating demand and supply challenges, many small tech companies are leaning towards subscription-based models. Examples include:

  • Nanit's Smart Video Baby Monitor: Subscribers pay for sleep insights, offering parents valuable data-driven assistance.

  • Miele's Smart Air Purifier: Customers are enrolled in automatic filter refills, ensuring consistent product usage and recurring revenue.

“It looks like the companies that will be best positioned to survive this moment are companies that have revenue streams that are padded out by recurring revenue. And by that I mean subscriptions either from services like cloud storage or like this smart video baby monitor that I use called the Nanit.”
[09:54]

4. Potential Decline in Product Quality

While these strategies offer short-term relief, there are underlying concerns about the long-term implications for product quality:

Nicole Nguyen voices apprehensions about the squeezing of suppliers:

“There's just not enough price elasticity for a higher priced version of that item to compete in the American marketplace. And so these brands will have to squeeze their suppliers. In other words, they'll have to negotiate better terms with their suppliers.”
[11:03]

This chain reaction could compel suppliers to cut corners to maintain profitability, potentially leading to a decline in product quality despite China's recent track record of producing high-quality goods. This scenario poses a significant risk not only for manufacturers but also for consumers who may face less reliable or inferior products in the market.

Conclusion

The WSJ Tech News Briefing episode titled "Small Tech Faces Tariffs Squeeze" provides a comprehensive overview of the multifaceted challenges small tech companies are grappling with in the current economic climate. From IBM's ambitious investment in AI and U.S. manufacturing to the complex repercussions of tariff adjustments on the supply chain and operational strategies of small enterprises, the episode underscores a period of significant transition and uncertainty in the tech industry. As these companies navigate through increased costs, shifting supply chains, and the necessity to innovate their revenue models, the long-term effects on both the industry and consumers remain to be seen.

Produced by Julie Chang with supervising producer Melanie Roy and deputy editor Chris Insinsley.