Daily Insights

Possible Consequences of President Trump’s TikTok and WeChat Bans

By: Asa Mazor-Freedman | Aug 11, 2020

When President Trump issued two executive orders last Thursday banning American companies from doing business with TikTok and WeChat, the consequences of long-term decoupling landed on the doorstep of virtually every American enterprise with a connection to China.

The two executive orders ban persons and entities “subject to the jurisdiction of the United States” from transacting with WeChat, TikTok, and their parent companies Tencent and ByteDance after September 20, 2020. Commerce Secretary Wilbur Ross will specify, before the order goes into effect, what transactions will be banned.

Unclear from the text of the orders is whether this ban will extend to transactions carried out by US firms within China, and whether they apply to foreign subsidiaries of US-based companies. The implications of such a ban within China are severe and far-reaching. 

ByteDance is the second-largest destination for digital advertising spend in China, accounting for 22% of total digital advertising in 2019. It is also fast-growing, up from merely 5% in 2017. If applied to business within China, the ByteDance ban would force US companies to jettison their investments on its platforms, which are key channels for reaching young Chinese consumers.

The WeChat order has yet more drastic potential consequences. WeChat is not merely an interpersonal messaging platform; it is a news source, entertainment platform, and commerce destination for roughly one billion Chinese internet users. As such, all of the 70 global and local luxury brands in Gartner’s upcoming Digital IQ Index: Luxury China 2020 operate a WeChat account to share branded messages and manage customer relationships. 88% of brands have invested in at least one WeChat “Mini Program”, a brand-operated piece of software that lives within the WeChat app to provide added functionality. WeChat is also one of only two dominant players in China’s digital payment services space, which has largely supplanted cash and credit card transactions in major cities. 85% of tracked luxury brands that operate a direct-to-consumer commerce website accept WeChat Pay. 

“WeChat is the most important social commerce channel in China,” according to Amie Song, Gartner for Marketers Sr. Specialist in Advisory. “Without WeChat, there’s no way for brands to effectively connect and engage with consumers online and offline.”

Even businesses that don’t sell to Chinese consumers could face the repercussions of a global WeChat ban. WeChat Work is a common business communication tool used in China by global businesses including Nestlé, Sephora, and Shiseido. Depending on the ban’s parameters, both B2B and consumer-facing businesses that rely on WeChat for their Chinese manufacturing could experience disruptions of varying magnitude.

These impediments would come at a time when American firms need access to the Chinese market more than ever. During the pandemic, China has been a lone bright spot for Estée Lauder Companies, Capri Holdings, Nike, and Ford, among others. In April, China became America’s largest trading partner, surpassing Mexico and Canada as the pandemic rages on in North America. “The timing for further ratcheting up of US-China tensions and the threat of a wholesale online barricade couldn’t be worse for many US brands,” says Danielle Bailey, MVP, APAC at Gartner for Marketers. “China likely remains the best chance for growth this year as the US continues to struggle through the pandemic.”

How likely is it that the WeChat and TikTok bans will extend to China? Anna Ashton, Senior Director of Government Affairs at the US-China Business Council, is “reasonably optimistic” that “we’re going to see something more limited”. Ashton cautions, however, that sources within the Trump administration are themselves unclear. “We’re hearing that either a decision has not been reached, or there is not clarity throughout the executive branch as to what the intention was.”

Administration officials have already attempted to clarify other aspects of the order’s scope, telling the L.A. Times that Tencent’s other properties—including globally popular video game League of Legends, among other media investments—will not be covered by the WeChat ban, despite language that, according to some legal experts, may say so.

But even if these executive orders don’t reach beyond US borders, they will likely still create headwinds for American companies in China. Retaliation from the Chinese government, says Ashton, is one possibility: “it’s a hallmark of the bilateral dynamic that when the US takes any punitive action, China tends to reciprocate with an equal or close to equal reaction. So the more we sanction, the more we’re going to be recipients of sanctions.”

Reciprocation from an indignant Chinese public may be more consequential. Nearly two years after Dolce & Gabbana caused an outcry on Chinese social media for advertisements seen as anti-Chinese, the brand’s performance in China now seems irreversibly diminished. In 2019, comments by Houston Rockets General Manager Daryl Morey in support of the Hong Kong protests sparked similar outrage in China toward the National Basketball Association. Broad damage to Brand America becomes both a near- and long-term risk for US companies operating in China.

The broader context of US-China decoupling is unlikely to assuage a Chinese public increasingly convinced it is under attack from the United States. US Secretary of State Mike Pompeo announced an expanded “Clean Network” initiative on Wednesday, singling out “aggressive intrusions by malign actors, such as the Chinese Communist Party (CCP).”

“Orders like this”, Ashton warns, “could be the beginning of a much broader, deeper decoupling that maybe wasn’t even intended, but that happens as a result of the fact that companies can no longer operate effectively within the China market.”

“And of course, that has a downward pressure on those companies’ revenue; it affects whether or not they can afford to move operations back to the United States or set up new ones. It could result in layoffs, and businesses going under.”

American firms can take several actions to protect their business in China and elsewhere. Explore alternatives to TikTok abroad, such as Byte and Instagram Reels. Assess whether WeChat is used for business communication with offices, facilities, and vendors in China, and prepare alternative channels. Actively monitor changes in the Chinese public’s perception of American ideas and symbols, and moderate your use of these concepts in Chinese messaging accordingly. If your brand experiences a public relations crisis in China, reaffirm your commitment to the market and continuously listen to social media for the more specific requests of Chinese netizens. Prepare for the possibility that more Chinese apps and technologies, such as those by Alibaba, will be banned.