The Ripple Effects of Tariffs on Digital Advertising: Evidence from the 2025 U.S. Trade Policy Changes

Trade policy interventions are typically designed to affect production costs, prices, and trade flows, yet their consequences may extend well beyond those. In particular, sudden increases in trade costs may alter firms’ discretionary investments, such as advertising, amplifying the economic effects of trade barriers. However, empirical evidence on how trade policy shocks affect firms’ digital advertising investments remains limited. We study the impact of the 2025 U.S. tariff changes on digital advertising markets, exploiting two policy events as natural experiments. The April 2, 2025 tariff announcement and the subsequent tariff implementation on August 7, 2025. Using weekly advertising spend data from a major digital advertising platform, combined with firm-level geographic and industry characteristics, we examine how tariff-induced cost shocks affect firms’ advertising expenditures. Our identification strategy leverages variation in firms’ exposure to U.S. tariffs. We apply difference-in-differences and triple-difference designs, comparing changes in advertising spend for U.S.-based advertisers relative to international advertisers before and after the policy events, with prior-year observations serving as placebo tests. Our sample consists of approximately 2,850 U.S. domains and 9,800 international domains after filtering. We further investigate heterogeneous effects by industry exposure using an LLM-based classification of firm tariff vulnerability across dimensions, including import intensity and China-sourcing. This enables analysis of whether firms with greater supply chain exposure to tariffed goods exhibit larger advertising reductions. Our findings provide novel evidence on how trade policy shocks propagate into digital advertising markets, highlighting an important but understudied adjustment with implications for platform revenues and advertising market dynamics.

Working Paper