The global video game industry with over $200 billion value thrives on cutting-edge hardware and innovative gaming content. However, recent trade policies introduced by the Trump administration in 2025, including new tariffs on Chinese, Canadian, and Mexican imports in February and March; the recent imposition of an additional global baseline tariff for imports from almost all countries and steep additional “reciprocal” tariffs on select U.S. trading partners in April; and still further increases in the reciprocal tariff for China alongside a temporary reversion to the baseline tariff for other U.S. trading partners later in April; along with consistently tightening restrictions on advanced chip exports to China, pose significant challenges to the game industry’s further growth. Additionally, the Framework for Artificial Intelligence Diffusion (the “AI Diffusion Rule”), may further complicate the landscape by extending the export controls on advanced computing chips and AI model weights to safeguard U.S. national security and foreign policy interests. This alert analyzes these policies’ implications for hardware production, physical game sales, and gaming collaborations between American and Chinese game developers.
Defining the Trump Administration’s New Policies
On February 4, 2025, the Trump administration implemented a 10 percent tariff on virtually all imports of Chinese-origin goods, which was subsequently increased to 20 percent in early March, alongside placement of a simultaneous 25 percent tariff on imports from Mexico and Canada.1 Though many imports from Mexico and Canada—those eligible for duty-free entry under the U.S.-Mexico-Canada Agreement (USMCA)—were eventually exempted from these new tariffs,2 trade policies continue to fluctuate wildly. Significant additional tariffs were announced on April 2, 2025. These latter, “Liberation Day” tariffs impose an additional global 10 percent baseline on imports from almost all countries as of April 5, with further escalations originally scheduled to come into effect on April 9 for imports from Cambodia (49 percent), China (34 percent), Japan (24 percent), Malaysia (24 percent), South Korea (26 percent), Vietnam (46 percent), and other select U.S. trading partners.3 Although the further escalations are now subject to a temporary pause (save for China, which now faces an increased reciprocal tariff of 125 percent), disruption caused by these tariffs on the global supply chain has direct impacts on video game consoles, related electronics, and physical game products.
Moreover, it has been reported that the Trump administration may be seeking to intensify export restrictions on high-end AI chips and graphics processing units (GPUs) to China, potentially expanding the export bans to cover even more GPUs, particularly by Nvidia, that have historically been eligible for export to China.4 While most of standard consumer-level gaming GPUs remain exempt from the restrictions, these restrictions’ indirect effects have already begun impacting the gaming industry globally.
Furthermore, the AI Diffusion Rule, introduced by the Biden administration in January 2025 with a delayed compliance date of May 15, 2025, builds on these restrictions. The AI Diffusion Rule establishes a tiered framework for AI access, extending export restrictions to further control advanced computing chips and AI model weights that had not previously been controlled before, with an apparent goal of maximally locking out countries like China.5 This rule aims to ensure that wherever an AI model may be deployed, it remains within the U.S. regulatory oversight. Though we are beginning to close in on the compliance date for the AI Diffusion Rule, the Trump administration has not yet rescinded or modified the rule since coming into office despite notable pushback from the tech industry.6
Industry Impact and Challenges
On February 3, 2025, the Entertainment Software Association (ESA) made a public statement, expressing its concerns that “[t]ariffs on video game devices and related products would negatively impact hundreds of millions of Americans and would harm the industry’s significant contributions to the U.S. economy.”7 Industrial reports assessing the anticipated impacts of the tariffs on gaming consoles and related products support ESA’s concerns.
Video game consumers in the U.S. are directly impacted by these tariffs. Seventy-five percent of all physical game consoles sold in the U.S., primarily from Nintendo, Sony, and Microsoft, are imported from China.8 Gamers cannot simply swap in another machine to evade the price impacts because a gamer’s account on one type of console is not transferable to another type of console (e.g., a Nintendo Switch player cannot transfer their account and the games purchased thereunder to a Sony’s PlayStation 5). Due to this consumer inelasticity, a large majority of the additional tariffs on game consoles imported from China are expected to be passed through to consumers.
Analysts projected that these tariffs would cause significant price increases, with Nintendo Switch potentially rising from $300 to $400, and Sony’s PlayStation 5 Pro jumping from $700 to nearly $1,000.9 Additionally, the Consumer Technology Association (CTA) noted in a report evaluating different tariff scenarios that, if the new administration’s tariffs escalate to a 10 percent or 20 percent tariff on all imports from all countries and a 60 percent or 100 percent tariff on all imports from China, then U.S. consumers will suffer from a 40 percent to 58 percent price increase in video game consoles, with their spending power reduced by $90 billion to $143 billion annually.10
While game companies such as Nintendo have already been shifting some of their console production supply from China to Vietnam and Cambodia to minimize geopolitical risks, they still anticipate impacts from the new tariff situation.11 The reciprocal tariff announcements on April 2, 2025, appear poised to affect wide swaths of products from countries other than China, Canada, and Mexico. With imports from Cambodia facing the prospect of an additional tariff rate of 49 percent and imports from Vietnam facing an additional tariff rate of 46 percent if or when those reciprocal tariffs are taken off pause, changing production from China to those countries may no longer be a lucrative tariff-avoiding solution for game companies.12
The new tariffs also affect game developers and publishers. Mexico is a central hub for physical game disc production, and a 25 percent tariff on Mexican-origin game discs could significantly increase production costs for game developers and publishers.13 Though digitally delivered games are not subject to tariffs under current World Trade Organization and U.S. trade law, an explosive global trade war could jeopardize this norm as well.
In addition to the newly imposed tariffs, another factor complicating the prospect of the gaming industry is the toughening of advanced semiconductor export restrictions on China. In late February 2025, it was reported that the Trump administration is planning to continue and expand the Biden administration’s export restrictions on advanced chips, including potential further restrictions on the quantity and types of Nvidia chips that can be exported to China without a license.14 The expanding export controls on advanced chips to China could further disrupt the global supply chain for high-end GPUs, raising costs for PC gaming hardware upgrades. It could also pose new challenges for game developers and producers in China, complicating U.S.-China gaming developing collaborations.
The AI Diffusion Rule could also potentially have a significant long-term impact on the global video game industry. While the gaming industry has not yet widely applied generative AI models in game design and development, some developers are already exploring possible use cases. As early as 2023, some individual developers built a GPT-empowered mod for the Elder Scrolls V: Skyrim, allowing NPCs to make real-time, AI-generated voice conversations with players.15 A more recent example is a Sci-Fi game still under development, Whispers from the Star, which uses AIs to generate and enhance scenarios and conversations.16 Given the rapid evolution of generative AI models and their increasingly wide application in various industries, it is probable that generative AI models will play a substantially more important role in game development in the long-run. Accordingly, the AI Diffusion Rule’s restrictions on AI model weights and related algorithms could impact developers in the most restricted countries, such as China, forcing those developers to either abandon the AI-powered tech pipelines in development or rely on AI models developed and available locally.
Why These Changes Matter
The combined effects of the Trump administration’s tariffs and chip export controls can extend beyond short-term price disruptions in video game consoles and physical game discs. These policies could fundamentally reshape the competitive dynamics of the gaming industry. For instance, elevated gaming hardware prices may suppress consumer demand, accelerating the industry’s pivot toward digital distribution channels. Game companies’ relocation of their supply chains away from China towards other regions could add cost, complexity, and risk to production processes—though new tariffs may target new foreign production sites as well. Additionally, tightening export restrictions on advanced chips may weaken Chinese gaming companies’ long-term competitiveness or, instead, may spur homegrown Chinese development of chip capabilities and potentially fragment the global gaming ecosystem.
Given these developments, gaming companies must closely monitor and continuously adapt to ongoing geopolitical policy changes under the Trump administration to protect their market position.
[1] Rebekah Valentine, New U.S. Tariffs Will Impact Consoles, GPUs, and Physical Games, Say Analysts, IGN (Mar. 5, 2025), https://www.ign.com/articles/new-us-tariffs-will-impact-consoles-gpus-and-physical-games-say-analysts.
[2] See Trump Delays Some Tariffs on Mexico and Canada for One Month, CNN (Mar. 6, 2025), https://www.cnn.com/2025/03/06/economy/tariffs-delay-mexico-canada/index.html.
[3] Exec. Order No. 14,257, Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits, White House (Apr. 2, 2025), https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/.
[4] See Mackenzie Hawkins et al., Trump Team Seeks to Toughen Biden’s Chip Controls Over China, Bloomberg (Feb. 24, 2025), https://www.bloomberg.com/news/articles/2025-02-25/trump-administration-seeks-more-restrictions-on-china-tech-weighs-nvidia-curbs.
[5] Barath Harithas, The AI Diffusion Framework: Securing U.S. AI Leadership While Preempting Strategic Drift, CSIS (Feb. 18, 2025), https://www.csis.org/analysis/ai-diffusion-framework-securing-us-ai-leadership-while-preempting-strategic-drift.
[6] Mackenzie Hawkins & Jenny Leonard, Tech Chiefs, Foreign Leaders Urge Trump to Rethink AI Chip Curbs, Bloomberg (Mar. 25, 2025), https://www.bloomberg.com/news/articles/2025-03-25/tech-chiefs-foreign-leaders-urge-trump-to-rethink-ai-chip-curbs.
[7] ESA Statement on Proposed Tariffs on Products from Canada, Mexico and China, Ent. Software Ass’n (Feb. 3, 2025), https://www.theesa.com/esa-statement-on-proposed-tariffs/.
[8] Jason Douglas, Anthony DeBarros & Danny Dougherty, How Much Do Tariffs Raise Prices?, Wall St. J. (Mar. 2, 2025), https://www.wsj.com/economy/trade/how-do-tariffs-affect-prices-trump-plan-009aa14e?mod=Searchresults_pos1&page=1.
[9] Zack Zwiezen, New Tariffs Could Lead to Fewer Physical Games and Higher Digital Prices, Kotaku (Mar. 5, 2025), https://kotaku.com/tariffs-trump-games-digital-consoles-price-increase-ps5-1851767919.
[10] See generally, How the Proposed Trump Tariffs Increase Prices for Consumer Technology Products, Consumer Tech. Ass’n (January 2025), https://cdn.cta.tech/cta/media/media/pdfs/cta-how-the-proposed-trump-tariffs-increase-prices-for-consumer-technology-products-january-2025.pdf.
[11] See Jim Norman, Nintendo “Establishing Ways to Respond” to U.S. Tariffs, Says Furukawa, NintendoLife (Feb. 17, 2025), https://www.nintendolife.com/news/2025/02/nintendo-establishing-ways-to-respond-to-u-s-tariffs-says-furukawa.
[12] See Aimee Picchi, See the Full List of Reciprocal Tariffs by Country from Trump’s “Liberation Day” Chart, CBS News (Apr. 3, 2025), https://www.cbsnews.com/news/trump-reciprocal-tariffs-liberation-day-list/.
[13] Jim Norman, Analyst Fears U.S. Tariffs Could Spell Disaster for Physical Games, NintendoLife (Mar. 5, 2025), https://www.nintendolife.com/news/2025/03/analyst-fears-u-s-tariffs-could-spell-disaster-for-physical-games.
[14] Mackenzie Hawkins et al., supra note 4.
[15] Adam Bankhurst, Skyrim Mod Uses ChatGPT and Other AI Tools to Give NPCs a Memory and Endless Things to Say, IGN (May 2, 2023), https://www.ign.com/articles/skyrim-mod-uses-chatgpt-and-other-ai-tools-to-give-npcs-a-memory-and-endless-things-to-say.
[16] Aishwarya Ghosh, Ex-HoYoverse CEO’s company reveals Whispers from the Star, an AI-powered game, Sportskeeda (Mar. 20, 2025), https://www.sportskeeda.com/esports/ex-hoyoverse-ceo-s-company-reveals-whispers-star-ai-powered-game.
