Digital Trade Wars: The Rising Threat of Tariffs to Global Government Software Innovation

by Brian Chidester, Head of Global Strategy & Innovation, Public Sector at Adobe

As the digital economy matures, policymakers are eyeing new revenue streams and strategic levers, and software has become a prime target.

Public sector organizations around the global rely on the latest software technologies as they seek to innovate and redefine digital governance for their residents. But as geopolitical tensions rise and trade wars expand into the digital realm, the software industry may no longer be immune to the disruptions tariffs have traditionally wrought on goods like steel or semiconductors. 

Historically, unlike physical goods, software typically isn’t subject to tariffs. Most software is delivered locally via cloud infrastructure already set up within tax jurisdictions, making tariff enforcement difficult.

That still holds true with the more recent tariffs—especially those imposed by the U.S. on Chinese-made technology goods. However, they still carry nuanced and potentially far-reaching implications for the global government software market. 

Here are some of the things you should understand about how the current environment will impact the global government software market:

🔄 Indirect Cost Increases

Even though software itself isn’t usually subject to tariffs, many software solutions are tightly integrated with hardware components or rely on specific platforms. Tariffs on components like servers, networking gear, and computing devices:

• Increase total cost of ownership for software tied to those systems.

• Could delay or reduce procurement of software bundles (especially in public-private cloud or edge computing environments).

  
  

🏗️ Delayed Digital Transformation Projects

Governments rolling out new digital services or modernizing legacy systems may hit delays due to:

• Hardware procurement challenges, which slow implementation of new software solutions.

• Budget reallocations, prioritizing immediate needs (like hardware replacements) over strategic software investments (e.g., analytics, automation, citizen engagement platforms).

  
  

🌍 Shift Toward Domestic or Allied Vendors

With increased geopolitical risk and rising costs:

• Governments may favor domestic or allied-country software providers over global competitors—particularly Chinese or U.S.-based platforms, depending on region.

• Procurement policies may change to emphasize data sovereignty, cybersecurity, and supply chain security—especially in sectors like defense, healthcare, and digital identity.

  
  

🔐 Cybersecurity and Sovereignty Take Center Stage

• Tariffs accelerate a trend toward “digital sovereignty”, where governments seek more control over critical software infrastructure.

• Expect growing investment in open-source, locally-hosted, or sovereign cloud solutions to mitigate vendor lock-in and reduce exposure to trade disruptions.

📉 Disruption for SaaS and Global Software Providers

• SaaS vendors that rely on international markets (especially in government) may see contracting cycles lengthen or cross-border deals stall as agencies reassess vendor risk.Some companies may need to establish local data centers or reconfigure offerings to stay compliant with evolving trade and security regulations.

🌐 Fragmentation of the Global Software Market

• Long-term, these dynamics could lead to a more fragmented global software market, with distinct ecosystems in the U.S., China, EU, and other regions.

• This fragmentation could impact interoperability, standards adoption, and collaborative projects (especially multinational public sector initiatives like smart cities, defense tech, or international aid platforms).

Future Implications for Software

And while historically tariffs were applied to physical goods—cars, electronics, or agricultural products crossing borders, as the digital economy matures, policymakers are eyeing new revenue streams and strategic levers, and software has become a prime target. Tariffs on software and digital services—such as cloud computing, SaaS platforms, and cross-border data flows—are beginning to enter the conversation.

For example, countries like India and Indonesia have introduced or proposed digital taxes on foreign tech companies, while others like the U.S. have retaliated with potential tariffs or trade barriers. This creates a complex web of trade policy that can act like tariffs in all but name.

And while tariffs on software may seem abstract compared to duties on tangible goods, but their impact could be far more profound. As global economies become more reliant on digital infrastructure, software tariffs threaten to not only increase costs but also limit innovation and collaboration across borders. Navigating this new terrain will require foresight, diplomacy, and a renewed commitment to an open, interoperable digital future.

Brian Chidester is the Head of Global Strategy & Innovation for Public Sector at Adobe and the host of "The Government Huddle with Brian Chidester" podcast from GovExec. Mr. Chidester holds a B.S. in Communications Studies from Liberty University, is an Advisory Board Member for Digital Government Central, an advisor to the G20 Global Smart Cities Alliance at the World Economic Forum, and a member of the Forbes Technology Council.