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Possible US ban on Alibaba can damage American businesses

A potential US ban on the Chinese multinational Alibaba Group could have a dramatic impact on American businesses, while affecting the company only minimally. On August 15, US President Donald Trump was asked whether he would exert pressure on other Chinese companies such as Alibaba, to which he replied: “Well, we're looking at other things, yes.”

Trump’s response came after the Trump Administration’s second Executive Order against TikTok, giving its maker ByteDance ninety days to divest itself of the US version of TikTok. On August 6, Trump also issued an Executive Order banning Americans from using WeChat transactions. WeChat is a product of the Chinese giant Tencent.

These bans are the latest in an escalating US-China tech Cold War. However, while the bans seem to have a huge potential impact on TikTok and WeChat, the impact would be less severe if Trump carries through on his vague threat against Alibaba.

An Alibaba ban would impact Americans in one of two ways: either by solely restricting Alibaba Cloud, which is the world’s third-largest infrastructure as a service, or a blanket ban on Alibaba offerings, including its ecommerce platform AliExpress. 

All the evidence points to a potential US ban on Alibaba hurting American businesses far more than their Chinese counterparts. This is especially impactful, as the American economy is suffering from the pandemic, while China’s economy is already rebounding. According to the World Economic Forum, the US economy fell by 32.9% in its second quarter, while China’s GDP rose by 3.2% for its second quarter, compared to the previous year.

Cloud and ecommerce in the US

According to US Census Bureau data, there are 40,029 companies in the country with ecommerce or mail order businesses. Generally, 12% of all businesses in the US have at least some ecommerce sales. 

The ecommerce industry has grown, especially in response to coronavirus-related lockdowns in the country, increasing up to 16% for hobby-related sales, and 6% for retail.

A significant portion of US ecommerce businesses use the drop shipping method. AliExpress is one of the biggest dropshippers, allowing thousands of online businesses to sell various products to their customers without having to worry about warehouses or shipping. The customer’s order is sent directly to an AliExpress vendor who ships the item to the customer. 

Beyond that, it also requires no deposits, subscriptions, contracts, guaranteed minimum amounts, or any other steep requirements that can act as a barrier to newcomers. For this reason, it’s often cited as one of the easiest ways to set up a dropshipping business in days or even hours.

Steve Tan, an influencer in the drop shipping industry, told CyberNews that he believes any ban on Alibaba and AliExpress would not impact US-based ecommerce stores severely.

“They can ban Alibaba and AliExpress, but they couldn't ban all the couriers that are shipping into the USA. That would be closing borders 100% to China, and that would affect not just international sellers but also all local sellers.” 

A ban on Alibaba’s cloud computing offering could impact other US businesses. With a 58% growth in its last quarter, Alibaba Cloud is battling for its own place in the Amazon-dominated cloud services industry.

In early August, US Secretary Mike Pompeo seemed to give warning for American companies to end business dealings with Chinese companies, including ending the use of cloud providers such as Alibaba. 

Selina Wang tweet screenshot

A ban that would specifically target Alibaba’s cloud offerings would impact both sides, although this seems minimally. On Alibaba’s side, it would slow its growth in the US market, although a large part of its business comes from the Chinese and Asian market.

In terms of the impact on US businesses that use Alibaba Cloud, a ban could result in varying service downtimes as they scramble to move to other cloud services such as Amazon Web Services. Even then, an Executive Order would most likely allow them enough time to switch from one cloud service to another. 

Trump’s possible Alibaba ban

It’s important to balance out the possibility of an Alibaba ban with Trump’s usual off-the-cuff style. Essentially, just because the US president says something, that doesn’t guarantee that it would happen.

Certainly, there haven't been many in-depth discussions about a possible ban on Alibaba. The recent Executive Orders against TikTok/ByteDance and WeChat/Tencent had long precedents: the former had been in trouble with the US since at least October 2019, while White House advisor Peter Navarro mentioned the possibility of a ban on WeChat in July 2020.

When it comes to a potential Alibaba ban, however, the only mention comes from Pompeo’s August warning with little substantial follow-up. It is also unknown the form that the ban would take: whether targeting any dealings with Alibaba and its products or subsidiaries (effectively banning business with AliExpress, Alibaba’s cloud services and others) or if it would specifically focus on Alibaba Cloud.

Many experts I talked to were not willing to speculate on the potential impact of an Alibaba ban, since it is unclear exactly what form such a ban would take. Such a ban at the moment seems unlikely, although not completely out of the question based on the current geopolitical climate.

Nonetheless, Alibaba’s Chief executive Daniel Zhang recently told investors: “Alibaba's primary commercial focus in the US is to support American brands, retailers, small businesses and farmers to sell to consumers and trade partners in China as well as other key markets around the world.”

"We are closely monitoring the latest shift in US government policies towards Chinese companies which is a very fluid situation. We are assessing the situation and any potential impact carefully and thoroughly, and will take necessary actions to comply with any new regulations," Zhang said.

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