Could a Trade War Hurt Alibaba Stock (BABA)?
Despite signs of a coming trade war between the United States and China, shares of Alibaba Group Holding Ltd (NYSE:BABA) have been surprisingly upbeat since the U.S. presidential election. Alibaba stock (BABA stock) rose eight percent in the last month, suggesting that the market doesn’t think it will be impacted by a trade war with China.
Or perhaps it means the market doesn’t believe that President-elect Donald Trump will engage in a trade war. Perhaps they think his inflammatory comments were confined to the campaign trail. If that is their view, I would advise them to take a closer look.
Chinese officials are tense about the Trump Administration. On Tuesday, President Xi Jinping of China gave a speech warning the U.S. not to engage in protectionism. He delivered the speech at the World Economic Forum in Davos, center of the economic policymaking universe.
Days before Xi’s speech, there was a backlash to Rex Tillerson’s comments about the South China Sea. In his confirmation hearing to become Trump’s chief diplomat, Tillerson said that China’s building of artificial islands was “akin to Russia’s taking of Crimea.”
“We’re going to have to send China a clear signal that, first, the island-building stops,” he added. “And second, your access to those islands also is not going to be allowed.” (Source: “Chinese Paper Calls Tillerson’s South Sea Threat ‘Foolish’,” Bloomberg, January 12, 2017.)
As you can see, it’s a safe bet that China-U.S. relations will get rockier in the coming months. But—and this is a big BUT—Alibaba stock could escape unharmed. In fact, we believe that BABA stock could come out ahead in this scenario.
Let me explain…
Alibaba Stock (BABA) Forecast 2017
Alibaba’s CEO, Jack Ma, met with Donald Trump a few weeks ago. In that secretive meeting, they sketched out a plan to bring U.S. retailers onto Alibaba’s platform. Trump loves the plan because it could result in one million new jobs for Americans.
But Alibaba stock is the real winner in the deal. Getting U.S. retailers onto the platform was the long-term goal of the company, because that would lead to more U.S. consumers shopping on Alibaba. Make no mistake, this is exactly what Jack Ma wanted all along—it’s a win-win.
Trump has shown that he is comfortable picking winners and losers. He doesn’t mind boosting a particular company if it is willing to play ball. Just look at how he pressured Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) into building cars in the U.S.
Now he’s warning BMW that any cars it sells in the U.S. should carry a “Made in America” stamp. Trump’s main objective is to provide more jobs for U.S.-based workers, regardless of the country of origin. This is why his animosity towards China won’t impact BABA stock.
As a business person himself, Trump seems unlikely to punish Alibaba stock because he disagrees with the Chinese government. This isn’t just speculation. His meeting with Jack Ma is evidence enough that Alibaba can slip through the cracks of a trade barrier.
Add that to the fact that U.S. retailers could soon flood Alibaba’s platform, and you have a stock on the brink of extraordinary gains.