Tuesday , July 22, 2025

The Global Trade War’s Toll on Payments Tech

The Trump administration’s global trade war leaves POS terminal and chip makers little choice but to pass on the cost of those higher taxes to their customers.

From economic uncertainty and a roiled stock market to predictions of a recession and stagflation, it’s been a wild ride since the Trump administration announced plans to increase tariffs on imports across a wide range of trading partners.

Further complicating the economic uncertainty created by the tariffs has been the changing position of the Trump administration on the taxes themselves.

The tariffs imposed on China, arguably the largest exporter of point-of-sale terminals and microchips, is a good example. After a initial 10% tariff on all Chinese goods imported to the United States imposed in February, the rate rose steadily before peaking at 145% in April. The 145% rate came after China announced a retaliatory tariff of 125% on goods imported from the U.S.

The two countries in mid-May achieved a temporary thaw in their trade war when the Trump administration announced it would lower the tariff rate to 30%, effective May 14. The lower rate is good for 90 days. In response, China announced it would reduce tariffs on U.S. imports from 125% to 10%. Up to the moment of the temporary reprieve by both sides, exports to the U.S. from China essentially ground to a halt.

China aside, the Trump administration announced in early April tariffs imposed on other countries would be paused for 90 days.

Given how fast the trade landscape has been changing, it is not surprising businesses in the U.S. are struggling to get their arms around the economic impact of the import taxes.

In the payments industry, POS terminal companies and chipmakers are expected to bear the brunt of the economic fallout. Several major terminal makers, such as San Jose, Calif.-based Verifone Inc. and France-based Ingenico, a big exporter of terminals to the U.S., have plants in China. Pax Global Technology, another major terminal supplier in the U.S., is headquartered in Shenzhen, China.

China is one of the largest exporters of microchips used to power terminals and chip cards, as well as a major supplier of the silicon needed to make those chips. While most of the microchips produced in China are subject to the tariffs, a carveout has been made to exempt chips designed in the U.S. and manufactured outside the country by companies such as Taiwan Semiconductor Manufacturing Co.

Many may welcome the temporary reprieve, but that doesn’t solve all of the problems raised by the latest U.S. trade policy. “What makes these conditions so difficult is their unpredictability—tariffs on and off, countries shifting stances—making it nearly impossible for business leaders to forecast,” says Antony Jenkins, chief executive, chairman, and founder of 10x Banking, a London-based banking-platform provider. “You have to focus on what you can control, even as real risks haven’t yet crystallized.”

‘The Global Epicenter’

Remembering the ill effects that arose when China’s terminal- and chip-manufacturing capabilities shut down during the Covid 19 pandemic, these companies have reportedly been stockpiling as much pre-tariff inventory in the U.S. as possible. That process began before the Trump Administration officially announced the new tariffs, which were expected after Trump took office.

Terminal and chip makers are also reportedly importing as much product as possible from countries with lower tariffs where they have plants, such as countries within the European Union, to avoid the high tariffs imposed on Chinese exports.

Unless a resolution to the trade war is achieved soon, the tariffs are expected to result in significantly higher terminal and chip prices once stockpiled inventories run out.

As a result, terminal and chip makers may soon have to make a choice between absorbing the cost of the tariffs or passing those costs through to their customers.

A quick end to the trade wars is unlikely, economists predict, since it can take months, even years, for countries to negotiate trade deals.

“China is the global epicenter for electronics and components and a lot of POS terminals, and the chips that go in them, come out of China,” says John Harmon, associate director, technology research, for Coresight Research Inc., which closely follows the Chinese tech sector. “This is not going to be a case of lack of terminal and chip availability raising prices, but who is going to pay the tariffs.”

With the full effect of the tariffs expected to be felt in the U.S. economy some time this summer, questions are emerging as to how long terminal makers can absorb the cost of the tariffs before passing them on to customers to reverse eroding margins.

“On some terminals, the gross margins are 50% to 60%. Cutting into those margins will be impactful,” says Tuan Duang, director, corporate U.S. ratings, for S&P Global Inc., a provider of financial information, analytics, ratings, and benchmarks to the global capital and commodity markets. “Terminal makers are going to want to look to move whatever capacity they can out of China,” to lower the hit to their margins.

‘No Clarity’

Ultimately, the expectation is that, if the trade war drags on, terminal makers will have no choice but to pass on the cost of the tariffs to their customers, regardless of how much manufacturing capacity they shift from China to countries other than the U.S. The baseline tariff for countries other than China is 10%, which is still a hefty fee, payments industry experts say.

“No matter how this plays out, the cost of the tariffs is going to be passed through to the customer eventually, and possibly even to the consumer,” says Christina Hulka, executive directive for the Secure Technology Alliance. “As of now, there is no clarity on how long the tariffs will last.”

As the cost gets passed through to acquirers and processors, and uncertainty grows over how long the tariffs will remain in place, merchants are likely to think twice about upgrading their hardware. “Merchants may re-evaluate their terminal-replacement strategy as the cost increases are passed through,” Hulka warns.

That could lead merchants to hang on to hardware longer than normal, which in turn could lead to PCI-compliance issues as those terminals age, Hulka adds. The Payment Card Industry Data Security Standard, which is enforced by the major credit card networks, is designed to protect card data and prevent fraud.

The outlook is not much better on the chip side. Efforts have emerged in recent years to ramp up U.S. chip production, but it can take years to build a chip plant after the plant has been greenlighted, and more time to ramp up production to meaningful levels, technology experts say.

“I doubt the U.S. could absorb all its manufacturing needs for chips at a competitive cost point in the short term,” says Nathan Hilt, managing director for business consultancy Protiviti Inc. “The general climate in durable goods [needs] to be flexible—exhaust inventory and pursue lower-tariff manufacturing where and when possible.”

‘Not a Great Substitute’

Even if terminal makers and card issuers can produce enough chips in the U.S. to weather the storm, chances are they will not be able to escape the price pressures tariffs are certain to bring. “There are materials used in chips that are imported to the U.S., so there is really no way U.S. chip manufacturers can be totally self-sufficient for domestic production,” says Hulka.

One alternative for merchants looking to avoid tariff-induced price increases is to adopt non-traditional POS terminals, such as tablets and smart phones, which as of now are not subject to the increased tariffs. Another option is to embrace POS systems that run on the Android operating system. These terminals are upgraded through software updates, which eliminates the need to replace the hardware itself.

To an extent, moves like this are already under way. “Rising tariffs are accelerating a long-overdue shift in payments infrastructure, [which is] moving intelligence from the terminal to the cloud. For U.S. manufacturers, this opens the door to reimagining hardware entirely,” says Deepak Jain, chief executive of Wink, a cloud-based biometric-based payment- and authentication-solutions provider.

Jain says his company is “seeing a decisive move” toward so-called dumb terminals, which are lightweight, low-cost devices that don’t bear the burden of processing, security, or compliance. “That work now happens in the cloud, slashing complexity and reducing dependence on tariff-sensitive components,” says Jain.

Such terminals are starting to take a share of the traditional POS terminal market, as merchants want to take advantage of easier upgrades and have easy access to new apps, Jain adds.

While non-traditional POS devices are gaining traction with merchants, it is not a slam dunk tariffs will accelerate that shift as rapidly as some may think, argues S&P Global’s Duang. “An iPad may cost the same as a low-level terminal, but it is not necessarily a great substitute,” he says.

Any decision by merchants to move away from traditional POS devices, however, would “most likely need to be rooted in more than just the hardware costs,” as the devices now already have integrated software and features that often are tied into the smart devices, adds Hilt.

‘Mission Critical’

One wrinkle that merchants may not consider when it comes to the impact of tariffs on terminal prices is that processors typically tie terminal sales to a service contract. While contracts lock in maintenance and servicing costs, those costs could rise as the contract expires to help processors recoup the higher costs they are paying for terminals. That could especially be the case if merchants slow their terminal replacement strategy, Hulka says.

“Raising service costs is a way to cover the cost of the tariffs without necessarily passing the cost of the tariffs along in the price of the terminal,” she adds.

If nothing else, it is going to be tough for terminal and chip makers not to pass along the cost of the higher import taxes. Just what percentage they pass through depends on how much they are willing to trim their margins.

“Some of the costs may not be passed through, but terminals are mission-critical for merchants when it comes to accepting payments, so they may have to end up eating some of those costs,” Duang says.

 

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