TikTok isn’t the only app from a Chinese company that is the subject of an executive order from President Donald Trump that affects U.S. mobile device users. Trump has banned American companies from doing business with WeChat. For those of you unfamiliar with it, WeChat is a messaging, social media, and mobile payment app that was launched by Tencent in 2011. Seven years later it became the most widely used standalone app with more than 1 billion people relying on the “super app.”
Executive Order against WeChat could backfire to hurt Apple, help Huawei
WeChat shares its user data with the Chinese government and censors certain topics of a political nature. And while the order would prevent transactions made by WeChat with U.S. corporations, it may have an unintended effect; the order prevents Apple from distributing WeChat through the App Store. This could result in lower iPhone sales in China where the app is used for many things such as email, browsing, shopping, and making payments.
Companies and consumers use WeChat to get in touch with businesses, friends, and family. WeChat is such an integral part of life in China that if it were to be removed from the App Store, an uproar would ensue. For example, an online forum used by investors in China asked subscribers whether they would give up WeChat or their iPhone if Apple were forced to remove the app from the App Store. By a margin of 20 to 1, the forum’s users said that they would drop the iPhone. Noting that China accounts for 20% of global iPhone sales, Anand Srinivasan, an analyst with Bloomberg Intelligence, said removing WeChat from the App Store “would be a serious hindrance” to Apple.
Additionally, there is a fear that Chinese consumers will retaliate against the executive order by disrupting Apple’s supply chain and its manufacturing. Apple designs its products in the U.S. and has the majority assembled in China. The latter could limit the amount of products that Apple is allowed to export from China and even restrict the number of materials that Apple obtains from the country. As an example, Bloomberg Intelligence’s Srinivasan mentions the rare earth metals that are used in the iPhone. While Apple wants to move a large chunk of iPhone production out of China, right now it can produce only a small amount of handsets in India but not enough to make up for any shortfall out of China.
There is actually a huge irony here. If the ban is put into effect and Apple can’t figure out a way to keep WeChat in the App Store, we could see a large number of Chinese consumers switch to a Huawei handset. That’s the same Huawei that the U.S. government has been banning from its American supply chain including Google. A rule imposed by the U.S. also will make it harder for the Chinese manufacturer to obtain cutting edge chips later this year. So if everything goes ahead and Apple is forced to remove WeChat from the App Store, we could see lower iPhone sales and higher sales of Huawei phones in the world’s largest smartphone market. Despite everything that the U.S. has thrown at Huawei, it is now the largest shipper of smartphones around the world, albeit by a marginal amount.
The executive order goes into effect in 43 days and one suggestion made in Bloomberg’s report suggested that Apple could find a way to allow apps to be installed on iOS without going through the App Store. But that would cost Apple the 30% cut it receives from in-app purchases and would be a drastic change for a company known for its walled gardens. And while you might note that WeChat is available in the Google Play Store, the Play Store is banned along with Google’s other Android apps in China. Huawei has its own app storefront where users can install WeChat from.
Unlike the executive order that bans TikTok in the U.S., which can be overturned with a purchase of the app’s U.S. operations, there doesn’t seem to be an easy way around the WeChat order. There are 43 days left and counting.
