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The Macro Brief – How AI can mitigate tariff costs
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Alastair Pinder, Head Global and EM Equity Strategist, looks at some surprising connections between AI and tariffs and how they are changing the way companies operate.
Disclaimer: https://www.research.hsbc.com/R/101/PJdHSbT
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Transcript
Podcast Introductions
00:00:02
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening. And now onto today's show.
00:00:23
Speaker
You're listening to The Macrobrief, the podcast that looks at the issues driving financial markets across the globe. This episode was recorded for publication on the 28th of August 2025 by HSBC Global Investment Research.
00:00:35
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All the disclosures and disclaimers associated with it must be viewed on the link attached your media player. And remember to like and subscribe to The Macrobrief wherever you get your podcasts.
AI and Tariffs: Unexpected Connections
00:00:49
Speaker
Hello, I'm Aline Van Dyne in our New York studio and welcome to the Macro Brief from HSBC Global Investment Research. If you're a regular listener, you will know we look at the issues driving financial markets across the globe.
00:01:03
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And today we're looking at not one, but two of these important issues, AI and tariffs. we look at how the two may be connected in surprising ways and actually changing the way companies operate and behave.
AI Investments Offsetting Tariff Costs
00:01:18
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Indeed, we explain how ai and investments in AI and cost impacts could help offset up to a quarter of the increased costs related to tariffs.
00:01:31
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To shed light on how this all works, I'm joined in the studio by Alastair Pinder, our Head Emerging Markets and Global Equity Strategist. Alastair, good to have you back on the podcast.
00:01:42
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Thank you very much for having me. I'm very excited to discuss two of these big buzzwords in financial markets. So let's get right to it. um AI and tariffs, just give us a little bit of context.
00:01:53
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What do we need to know about them in terms of why they're important?
Impact of Tariffs on US Companies
00:01:57
Speaker
Well, for for tariffs, ah you know the biggest and most important factor is you know the fact that the effective tariff rate has increased by almost, ah depending on different estimates, but 16%, 17% since Trump's term.
00:02:13
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That is the biggest rise um since the nineteen thirty s And, you know, that is clearly very problematic for U.S. companies that we estimate probably import around 25 percent of their of their costs.
00:02:29
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So that's that's one issue. And of course, most of these haven't quite kicked in or ah have only very recently kicked in. Totally.
AI Adoption and Market Impact
00:02:38
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And then the the second aspect you're talking about AI.
00:02:41
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i mean, you know, AI has just become, i guess, so widely adopted across the US economy so rapidly. And the amount of spending that is going into this is is just phenomenal. So if you take the Magnificent Seven, they are spending almost $100 billion a quarter on CapEx related to investments in AI, etc.
00:03:06
Speaker
And the other you know surprising aspect is that ah construction spending on data centers has now nearly overtaking ah construction on on general offices for the first time ever. So that, I think, just shows you the extent to which you know the U.S. economy has completely geared and then the U.S. equity market is completely geared towards ai at this point Now, of course, these are all costs at the moment, but presumably the reason this has propelled equity markets to record highs this year is because of the potential of all this AI investment down the line.
00:03:42
Speaker
Totally. So there's I mean, there's two areas um you could you can think about AI. One is the revenue generation, which is from the Magnificent Seven and these other AI related companies. And again, focusing on that that Magnificent Seven, we're already seeing revenue generation come through and and their earnings growth is phenomenal. It's almost 30 percent year on year every quarter.
00:04:02
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but Probably the one underestimated impact of AI is actually on the end user and how that can essentially drive costs. You know, we we implement AI to become more efficient or even more scarily replace ah labor and employees and they can do our job for us.
00:04:19
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That all in ah in a drive to try and become more cost efficient. Yes, so these are the impacts of AI. Clearly there's no signs that this investment is slowing
Tariffs as Catalysts for AI Adoption
00:04:30
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down.
00:04:30
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At the same time, there are these tariffs, either looming or recently introduced, a big cost increase on companies. ah Why are the two related? Like, why does it really matter? Is it just calculating the costs and the potential benefits or is there more of an interaction between these two?
00:04:49
Speaker
Well, I think one of the the interesting dynamics is, you know, very much like during COVID-19, which spurred innovation and and for companies to think completely differently to, you know, navigate this sea change in in really the world and how we operated, know,
00:05:08
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It's not, I don't think, too much of an exaggeration to say the level of tariffs that we're facing now for U.S. companies is seismic and they need to do things differently to to basically offset that. and So you're saying basically the risk or the impact on their costs is a catalyst to try and find an alternative way of doing things?
Managing Margins with AI
00:05:29
Speaker
Completely. And so AI has come at this like opportune moment where they can leverage it, they can invest in it, and they can save costs by doing that. And so that can be perhaps a counter effect to some of these margin pressures which they're facing at the moment.
00:05:46
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Which also means, of course, that potentially the tariff increases, for example, are not directly passed on to consumers because there's other things going on behind the scenes. Totally.
00:05:57
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And this relationship between tariffs, ah margin pressure, and then the potential to cut costs from AI, is there any evidence that companies are actually speaking about this?
00:06:10
Speaker
So there's there's lots of different evidence. and So one is the question is like, are companies, more companies adopting or using AI? And ah the Bureau of Economic Analysis has a survey which essentially covers the whole of the US corporates. And ah they ask in that survey,
00:06:30
Speaker
are you using AI to um you know in your in your daily business? And the percentage of of of companies that say yes has jumped from 6% at the end of last year to 9% now. So in a short span of the month, we've had like a 50% increase in respondents saying, yes, we're using AI.
00:06:47
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And that's coincided with, you know, ah the recently implemented tariffs by the US administration.
AI Adoption Rates and Company Size
00:06:53
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the the There's also been another bunch of surveys from the the Fed and more recently from the CEO survey, ah which explicitly asked the question, you know, do or will tariffs incentivize you to invest more in AI?
00:07:10
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And the kind of resounding answer is, Yes. Okay, so it's a specific question asked. Yeah. And then there's probably some room for differentiation here because on that survey that I mentioned before on um from the BEA, 9% of companies using AI doesn't actually sound that much like that much.
00:07:34
Speaker
And there's a few reasons for that. One is that it includes the whole of the US s economy. So a lot of agricultural companies, ah some construction companies are included in that. So it's a massive sample base. It's a massive sample base. And and there's they actually break it out by employee size. And it's also very interesting that large capital, companies with a large number of employees are much more likely to adopt AI.
00:07:54
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And if we take that to the extreme and we focus on the the biggest companies in the US, which are in the S&P 500, there we think you know the adoption and usage of AI is much, much higher. And that's because, namely, of that different skew in sectors, so there's more financial companies, there's more tech companies, these are all companies that are much more likely to adopt AI because the cost efficiencies and the way to use it is much more applicable.
00:08:18
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ah But it's also because they're just bigger and have more money to invest. ah But our estimates are just that around 60% of S&P 500 companies are currently investing in AI right now, as a way to basically try and save costs.
00:08:31
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So survey indicates 9% rapid increase, but actually it totally understates what's happening in the S&P 500 companies. In the equity market, totally. Okay.
00:08:42
Speaker
And I know you've published reports on this, of course. You've also looked at actual company commentary on earnings calls to identify what what management is saying. So just talk us through some of those conclusions. Well, I think one of the the questions that we get a lot from investors is that AI, AI, AI mentioned all the time, amazing buzzword, but like, what's the proof?
00:09:06
Speaker
Like, what ah how are companies basically, you know, implementing this? And to what extent are they saving money? And so we did kind of like a deep dive analysis on 500 earnings calls.
00:09:18
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and we look specifically for very tangible examples of the savings that companies are made from implementing and There's two, I guess, you know very interesting things that came out of this. One is that in our sample of nearly 50 companies, on average, they basically suggested that by implementing AI, they could reduce their costs by 1%.
00:09:41
Speaker
Now, 1% doesn't sound like a huge amount, but just to put that into into perspective, that can probably offset 20 to 25% of the increase from tariffs.
Market Underestimation of AI's Potential
00:09:52
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so So that's from ah like 20% tariff. Yeah. So, you know, if you think about a 20% tariff, you know, if 25% of their costs are imported, roughly speaking, that's a 5% increase in costs. If AI can reduce 1% of that, roughly, you know, a fifth to a quarter of those costs can can basically ah be offset.
00:10:12
Speaker
Now, the other thing just- And that's over the next couple of years? That actually is a mixture of what's already happened and is upcoming. And that I think is that the interesting part because obviously earnings call commentary is often quite backward looking and this is still very early stage. So over the next six to 12 months I would expect the adoption of AI and the more tangible examples to actually come through and the effectiveness of those ah you know AI ah programs to actually become bigger and better.
00:10:43
Speaker
So basically, given this scenario now and given that tariffs clearly are here to stay, there continue to be negotiations with various countries, but clearly implementation has has started already, watching this dynamic will be quite important in the coming months.
00:11:01
Speaker
Definitely. And, you know, I think the other thing that we highlight within, you know, the U.S. equity market is that I do think this is a very underappreciated story. So, you know, the Magnificent Seven and the difference of, you know, AI infrastructure stories or the AI enablers have rallied, you know, anywhere between 60 to even, you 150 percent over the last years.
00:11:26
Speaker
But the early adopters of AI are probably up around 20 to 30%. And so it feels like the market isn't taking enough notice of these companies that are actively engaged in in using AI from ah from a cost perspective.
Future Expectations and Market Implications
00:11:41
Speaker
Okay, great. Well, look, Alistair, that's really interesting. i do hope that we can follow up in a few months when we have a bit more data. And as we continue to see how tariffs and the the looming higher costs is actually changing behavior or or perhaps encouraging some innovation across the U.S. Thank you very much.
00:12:03
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Thanks, Alistair.
Upcoming Events and Closing Remarks
00:12:08
Speaker
Now, listeners, a date for your diary. The next edition of our live insights on LinkedIn will be taking place on the 10th of September. Dara Ma, head of digital assets research, and Piers Butler, my co-host and head of Global Research Direct, take a deep dive into the evolving world of digital assets.
00:12:29
Speaker
And a reminder that if you're an HSBC Global Investment Research client, don't forget to download our mobile app. The app features all of our latest research videos and podcasts, this one as well as others.
00:12:43
Speaker
You can find it on Apple's App Store and Google Play. And if you'd like to get in touch with us, you can do so by emailing us at askresearch at hsbc.com.
00:12:57
Speaker
That's all for this week. Please join us again soon for more insights and views on the Macro Brief.
00:13:26
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.