The politics of trade and its impact on advertising

Perhaps the single biggest factor in Meta’s advertising success over the past 12 to 18 months has been the tailwind from Chinese-based advertisers selling into North American and European markets. I have been advising my clients about this for quite some time.

This trend is also likely to benefit platforms like Amazon significantly. However, there's a potential ‘grey swan’ risk, namely, that such advertisers would be hit by the fallout from US politics, especially China-US trade disputes. That has now happened, so what is the likely impact for the major online platforms??

Firstly, Chinese ecommerce retailers such as Shein and Temu have been leveraging the ‘De Minimis’ tariff rules in the US, allowing imported goods under $800 to bypass tariffs. This has enabled them to penetrate the US market with ultra-cheap pricing strategies, leading to major investments in the US advertising ecosystem. Temu, for instance, bought up a lot of ad slots during the Superbowl.

However, the rules also led to a political backlash. Part of it was related to claims the massive explosion of such trade was fuelling the Fentanyl drug crisis in many American cities as it was overwhelming the capacity of US Customs agents to intercept drugs. However, most was down to the trade impact. A US House of Representatives Committee reported that Shein and Temu accounted for over 30% of shipments under the ‘De Minimis’ exemption.

In response, the Biden Administration is tightening these rules, cracking down on the “overuse and abuse” of the scheme by Chinese companies by closing the loopholes and also introducing other rules, such as increased tracking, to restrict such shipments. It is no surprise that such an announcement was made as we head into the US presidential elections in November. Given trade disputes—and Donald Trump’s frequent claims that the current administration is weak on China—the debate is heavily dominated.?

The key question for APAC businesses is how these changes will impact platforms like Meta and Amazon, and other players in the advertising ecosystem. In 2023, Meta’s revenues from Chinese customers were $13.69 billion, an 85% increase year-on-year. Although figures for H1 2024 are not available, overall advertising revenue growth from Asia-based customers was 49%, likely driven by Chinese advertisers. Amazon's revenues from Chinese sellers are also significant, with nearly 50% of the top sellers on its US platform originating from China.

Now, there are going to be a lot of caveats to the above figures when it comes to the impact of the tariffs. At least for Meta, that includes a significant percentage of that $13.7 billion coming from gaming companies, which would not be impacted, whether all that money goes into the US (it doesn’t) and how many companies are already paying tariffs, which also applies to Amazon for the latter two points. For Amazon, its advertising revenues will include a significant amount of advertising coming from first-party brands, and it is likely to see minimal impact from the changes. Moreover, Temu and Shein are also opening warehouses in the US reducing their reliance on ‘De Minimis’ rules over time.

What does that all mean? For Meta, my back-of-the-envelope calculation suggests an impact of $7.5 billion at risk and over $10 billion for Amazon.?[These calculations are based on figures for 2023, the impact for 2024 is likely to be significantly higher]. The scaling of US-based operations by companies like Temu and Shein could mitigate some effects. This scenario highlights how geopolitical issues can influence advertising dynamics, presenting both challenges and opportunities for APAC businesses. It also shows how politics and the ‘bigger picture’ can easily impact advertising.?

As usual, this is not investment advice.? ??

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