Asian advertising braces for a trade war that may never come

Donald Trump has never hidden his hostility to what he sees as China's blatant trade practices, and the world is worried about the threat of tariffs and their impact on the global economy. That naturally has implications for advertising spend globally, given the close links between it and the economic environment. But what if the concerns are overdone? And, if that is the case, what does that mean for advertising spend?

Trump certainly has a long history of making protectionist statements and accusations that other countries are 'ripping' the United States off (interestingly, Japan—his original target from several decades ago—is now back in his firing line). However, it is important to note that Trump is not a protectionist in the intellectual sense but more in the transactional one, namely that he sees tariffs as a means to an end, not the end itself. This explains why some of the concerns may be overdone.

Trump practices the Richard Nixon tactic of 'mad beats bad', namely that it is better to appear unpredictable and be capable of taking extreme actions to get what he wants. Even before his inauguration, there were some signs that supposedly outlandish comments were having an effect. Greenland's prime minister has been emphasising how the US and Greenland can increase cooperation (Greenland is seeking independence from Denmark), and, in the Middle East, Trump's threats to unleash 'hell' seem to have had an effect on a ceasefire in Gaza. I suspect we will see the same with tariffs. The language is so extreme that it forces firms or countries to offer some form of compromise.

But what does Trump want, and will he get it? The obvious win for Trump is for industries and jobs to be reshored to the United States. There are already some signs this is working (accelerating a trend that has been happening over the past several years). However, a less mentioned aim, but one that is particularly important to Trump and Republican politicians in Rust Belt states in particular, is the issue of drugs, particularly Fentanyl, which has had a devastating impact on communities. It is no coincidence that Trump's language on tariffs has been toughest on China, Canada and Mexico, which all have a major role in the trade (the raw materials for Fentanyl are produced in China, shipped to Mexico for reformulation by the cartels, and the long US-Canada border provides easy access to the US). Trump is looking for progress here—if he gets it, he is likely to drop his more drastic threats regarding tariffs, especially as he is aware that this raises the risk of higher inflation and prices for US consumers.

There is also the attitude of the Chinese authorities. The Chinese economy is seeing sluggish growth and facing multiple problems, such as the property sector crisis (Chinese consumers are heavily weighted towards property assets), mixed consumer spending, and no signs that its stimulus programme is having a major effect. It is unlikely that China wants to embark on a trade war with the US, and other news—for example, that the Chinese authorities have approached Elon Musk to broker a deal over TikTok—suggests that they are looking to adopt a more emollient than confrontational stance despite some of the public language.

What does that suggest for advertising in the region? Well, overall, it should be positive, as might seem obvious. If the threat of a tariff war does not emerge, then the global economic situation is likely to remain benign, which should benefit advertising. However, there is one issue, and that is China, for two reasons. The first is advertising growth in the Chinese market itself, which, if consumer demand does not pick up, may remain relatively subdued (as the second biggest advertising market globally, this would also impact on global growth). The second is more subtle but might be more of an issue, namely that the weakened demand in China is starting to impact corporate profitability significantly, in some cases, and/or sectors such as luxury goods and Western car manufacturers.

The second factor may lead some of these firms to withdraw advertising spend from the region and reorientate it to markets such as North America and Western Europe, which might be seen as better bets in the circumstances. And if the impact on corporate profitability is so meaningful, it may lead advertisers to cut spend altogether. That may be more of an issue on which to focus.

As usual, this is not investment advice.

Ian Whittaker is the founder and managing director of Liberty Sky Advisors. He writes regularly for Campaign about the advertising landscape from a financial standpoint.