On Thursday, stock markets experienced a significant downturn following the announcement of “reciprocal tariffs” by President Donald Trump. While President Trump had previously indicated his intention to impose tariffs to address the U.S. trade deficit with multiple countries, the extent of the tariffs surprised investors. The revised measures include a 54% tariff on imported goods from China, an increment from the earlier 20% rate imposed by the president.
The reaction in the U.S. stock market was notably negative, although the effect on Chinese stocks was less severe, with the iShares MSCI China ETF declining by just 0.9% on the same day. This performance aligns with the current trend where international stocks are outshining U.S. equities. The factors contributing to this trend include less exposure to the U.S.-China trade conflict and the relatively lower valuations of international stocks at the start of the year.
Chinese stocks, in particular, present attractive valuations, with PDD Holdings—a leading entity in e-commerce through its platforms Pinduoduo and Temu—standing out as a significant performer. This company is actively challenging Alibaba and JD.com for e-commerce dominance in China.
The newly imposed 54% tariffs are expected to have diverse effects on China’s economy. Some companies, such as Nike, have already relocated parts of their manufacturing from China to nearby countries like Vietnam, and this movement could intensify as businesses attempt to circumvent the tariff-related expenses by shifting production to regions with lower tariff rates or even back to the United States. In 2024, U.S. imports from China reached $438.9 billion. The ongoing trade dispute may further strain China’s economic health by raising costs for goods, prompting China to consider instituting its own tariffs to safeguard its economic interests.
The specific ramifications of these tariffs on China’s economy remain uncertain; however, increased consumer vulnerability could impact e-commerce entities such as PDD Holdings. Although PDD Holdings does not disclose its revenue sources by region, it has invested heavily in promoting Temu, its budget-friendly e-commerce platform. This has intensified competition in the digital advertising market and allowed the company to seize market share from various e-commerce platforms and retailers.
In response, Amazon has introduced Haul, a low-cost initiative aimed at counteracting the competitive threat from Temu and Shein, although its performance has yet to be evaluated comprehensively. In 2024, PDD Holdings generated $54 billion in revenue, with gross merchandise volume (GMV)—the total value of products sold through its platform—expected to be significantly higher. In the U.S. alone, GMV could be at least $5 billion, likely much more, given Temu’s impact on the e-commerce sector. The company relies heavily on advertising revenue, which depends on advertisers’ confidence in consumer spending.
The tariff announcement may lead U.S. investors to shift towards Chinese stocks. Even before the tariffs were introduced, some investors, including billionaire David Tepper, were already pivoting towards Chinese equities, attracted by more favorable valuations compared to U.S. stocks. In this scenario, PDD Holdings could capitalize if the tariffs trigger a U.S. economic recession as it remains a popular choice among American investors. Although its growth has decelerated recently, PDD reported a 24% increase in revenue for the fourth quarter, continuing to surpass competitors like Alibaba and JD.com. At a price-to-earnings ratio of 11, there are compelling arguments for investing in PDD based on its strong fundamentals.
John Mackey, former CEO of Whole Foods Market, which is an Amazon subsidiary, serves on The Motley Fool’s board of directors. Jeremy Bowman holds positions in Amazon and Nike. The Motley Fool maintains positions in and recommends both Amazon and Nike, and also recommends Alibaba Group and JD.com. For further details, please refer to The Motley Fool’s disclosure policy.
