Alibaba, Tencent, and GDS Holdings Fell as Trump Ratchets Up Tariff Talk

Chinese stocks struggled today after President Donald Trump said additional tariffs on Chinese imports are slated to go into effect Tuesday. Hong Kong's Hang Seng Index fell 3.3%, suffering one of its worst days since mid October.

Shares of Alibaba (NYSE: BABA) traded 2.7% lower as of 11:30 a.m. ET, while shares of Tencent (OTC: TCEHY) traded 2.4% lower. Shares of GDS Holdings (NASDAQ: GDS) initially slid almost 8% in pre-market trading but had recouped most of those losses by 11: 30.

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Trump may be more serious about tariffs than people thought

Investors who thought tariffs would be more of a negotiating tactic will see their thesis put to the test next week after Trump said that 25% tariffs on Mexico and Canada that he previously paused will go into effect Tuesday. Meanwhile, he also said there would be an additional 10% tariff on Chinese imports. While China's response to Trump's initial 10% tariffs was more muted, officials didn't hold back this time.

"If the U.S. insists on its own way, China will take all necessary countermeasures to defend its legitimate rights and interests," a spokesperson for China's Ministry of Commerce said in a statement, according to CNBC. "We urge the U.S. side to not repeat its own mistakes, and to return as soon as possible to the right track of properly resolving conflicts through dialogue on equal footing."

Chinese tech stocks had been on a tear this year, with the emergence of DeepSeek leading investors to grow bullish on artificial intelligence in the country. Furthermore, with China's economy still struggling, the government had seemingly thrown its support behind the tech sector. President Xi Jinping recently held a rare meeting with tech and start-up leaders in the country that largely encouraged the group.

Still, the additional tariffs throw a wrench in what had been a badly needed rally for Chinese stocks.

"The extra 10% is frustrating because it keeps uncertainty alive and reinforces the risk that this becomes a pattern," Billy Leung, an investment strategist at Global X ETFs, was quoted as saying in a Bloomberg News article. In the same article, Kristina Clifton, a senior economist at the Commonwealth Bank of Australia, was quoted as saying her team expects the Chinese government to bolster spending to try and reduce the impact of tariffs on the Chinese economy.

Investing in China means dealing with geopolitical tensions

When you invest in Chinese stocks, the regulatory landscape in China and geopolitical tensions are going to be a big part of the story. Tariffs and export controls by the U.S. have been in play since Trump's first term and through former President Joe Biden's term, and have now ramped up even further in Trump's second term.

Many believed Trump would use tariffs as more of a bargaining chip, and this may be the end result. However, the administration likely at least needs the market to take tariffs seriously for a little while. Trump has also been unpredictable, so it's hard to say with certainty that he won't go through with his full tariff agenda.

Due to the struggles in China's economy and the stock market in 2024, investors can likely buy most Chinese tech stocks at cheaper valuations than those in the U.S., and a lot of these companies have tremendous growth prospects. However, they will likely be volatile due to factors like geopolitical tensions or China's regulatory regime, so keep this in mind and take a long-term approach if you invest.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tencent. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.