What is the impact of tariffs on the internet & e-commerce sector?

Investing.com -- U.S. President Donald Trump introduced a 25% tariff on most imports from Canada and Mexico and an increase from 10% to 20% on Chinese goods.

China responded with additional tariffs of 10-15% on various U.S. agricultural imports, while Canada introduced new tariffs of its own. Meanwhile, Mexico postponed its announcement of retaliatory measures until Sunday, leaving room for possible diplomatic negotiations.

According to Bank of America analysts, the escalating trade war “introduces risks to U.S. supply chains, inflation, and corporate earnings, with potential near-term slowdown in consumer spending due to negative headlines.”

“Markets were down initially on the news, but there remains optimism that President Trump could reverse course on tariff policies, so the situation remains fluid,” the analysts led by Justin Post added.

In the e-commerce sector, BofA estimates that prices could increase by 5-10% relative to 2024 levels due to the tariffs, which may pressure unit sales and inflate costs, potentially crowding out discretionary spending. Retailers and suppliers might face lower margins if they choose to absorb these higher costs.

However, BofA notes that companies with large third-party (3P) selections, like Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY), could benefit as they offer consumers the ability to choose cheaper items or substitutes. These platforms also earn commissions on the final value of 3P sales, which could increase with higher pricing.

Furthermore, BofA highlights that certain companies, such as Chewy (NYSE:CHWY), Etsy (NASDAQ:ETSY), and RH (NYSE:RH), are actively shifting their supply chains or have low international exposure, which could limit the impact of tariffs.

Chewy and eBay are the bank’s top stocks with the least tariff exposure due to their minimal reliance on Chinese imports. Nonetheless, a consumer spending slowdown could affect all stocks in the sector.

The analysis also extends to the U.S. online media sector, where there is a risk that manufacturers and sellers might reduce their advertising budgets in response to the tariffs.

“We believe retail, automotive, and electronics could be most exposed to rising input costs from tariffs, and these sectors collectively represent approximately 43% of US online ad spend, according to eMarketer,” the analysts wrote.

A macroeconomic slowdown could lead to a major headwind for online media ad spend in 2025.

BofA suggests that small to mid-cap online media platforms, such as Pinterest (NYSE:PINS), Snap Inc (NYSE:SNAP), and Reddit Inc (NYSE:RDDT), might be at greater risk for spending changes due to a macro slowdown, while Google (NASDAQ:GOOGL) might be less affected due to its strong balance sheet, already weak sentiment, and lower earnings-based valuation.