Tariffs Could Trigger Turbulence in Global VR/AR Technology Investing

J.C. Kuang, Analyst Augmented Reality, Insight Articles

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The continued political tensions between the US and Chinese administrations over the last few weeks has begun to exercise a visible influence on the emerging augmented reality hardware market. Hardware startup Meta announced last week that an incipient investment led by a Chinese equity firm was suddenly revoked under pressure from the Chinese government. Officials cited specifically the latest round of tariffs imposed by the Trump administration as a major consideration. More recently, further tariffs from China have placed previously unaffected trade sectors, including electronics, in the crossfire, and all but dashed hopes of a healthy trade relationship between both countries in the immediate future.

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This development clearly illustrates the danger currently facing all emerging technology startups. Furthermore, the deal sets a worrying precedent for those who are seeking overseas investment under the current sociopolitical climate of a trade war. Within the AR space specifically, notable investments in industry mainstays like Avegant, Blippar, and Magic Leap have also relied on Chinese investment. Turbulent socioeconomic conditions have become harder to predict under the current administration. Perhaps, as a result, business leaders in various sectors worldwide have reported increased geopolitical instability and other social threats as increasingly detrimental to global business administration.

Traditionally enthusiastic early adopters in China make it a fertile ground for AR/VR in general. Currently, the country is driving a large part of the emerging APAC region's impressive growth. These conditions also make it a favorable ground for Meta's backup strategy; furloughing dozens of its employees and attempting to shore up funds with an additional RMB-based revenue stream established on Chinese soil, thereby circumventing diplomatic tensions around the trade war.

However, this ad-hoc solution is far from viable for many organizations seeking to raise funding, especially in early stages. Moreover, it doubtless places significant pressure on the company as they move to secure new funding. The Meta 2 device itself, their flagship, enjoyed a mixed reception, and no new products or developments have emerged since its launch in late 2016.