Stocks plunged on Thursday in response to President Donald Trump’s “reciprocal tariffs.”
While the president had telegraphed his desire for punitive tariffs to try to balance the trade deficit the U.S. has with much of the world, investors were taken aback by their size. China has long served as a scapegoat for Trump so perhaps it’s not a surprise that goods imported from China will now face a 54% tariff, which includes a 20% rate the president imposed earlier.
U.S. stocks tumbled on the news, but the impact on Chinese listings was much more modest, as the iShares MSCI China ETF was down just 0.9% on Thursday.
International stocks are outperforming U.S. stocks so far this year, and that makes sense. Not only do international stocks have less exposure to Trump’s trade war and the weakening consumer confidence in the U.S., but valuations are much lower in international equities, especially entering the year.
China stocks are especially cheap right now, and one that has been a standout performer in recent years is PDD Holdings (PDD -8.37%), the parent of Pinduoduo and Temu, which is challenging Alibaba and JD.com for e-commerce supremacy in China. Let’s take a look at what PDD stock investors should know about the tariffs.
Image source: Getty Images.
1. What the retaliation tariffs mean for China
The 54% tariffs being imposed in China will affect the Chinese economy in a number of ways. Already, a number of companies like Nike have moved some of its production out of China to neighboring countries like Vietnam, and that trend could accelerate as companies looking to avoid the tariffs move production to countries with lower rates or even to the U.S.
In 2024, U.S. imports from China totaled $438.9 billion. In addition to sending production out of China, the trade war could also weigh on an already weak Chinese economy if it makes goods more expensive, and China has already said that it will impose its own tariffs to protect its economy and its interests.
The size of the impact on the Chinese economy is unclear, but more consumer weakness will weigh on e-commerce operators like PDD Holdings.
2. Imports to the U.S will be affected
PDD Holdings doesn’t break down its revenue by region, but the company has put considerable effort into marketing Temu, its low-cost e-commerce platform, enough so that it’s made the digital advertising market more competitive and it’s grabbed market share from a number of e-commerce companies and other retailers.
Amazon has responded to the threat from Temu and Shein by launching Haul, its own low-cost platform, though it’s unclear how it’s performing.
PDD brought in $54 billion in revenue in 2024, but its gross merchandise volume (GMV), or the value of goods sold on its platform, is likely much larger. At a minimum, the company likely did $5 billion in GMV in the U.S., but it’s probably several times larger than that, given Temu’s impact on the e-commerce market.
Advertising is the biggest source of revenue for the company so it’s also reliant on advertisers being confident in customers spending on the platform.
3. U.S. investors could rotate to China
Prior to the tariffs announcement, some investors were already rotating into Chinese stocks, including billionaire David Tepper, seeing an opportunity there as Chinese stocks are much cheaper than their U.S. counterparts.
In that sense, PDD Holdings could benefit if the tariffs drive the U.S. economy into a recession as it’s one of the more popular Chinese stocks for American investors to own.
Though its growth rate has slowed down in recent quarters, the company reported 24% revenue growth in the fourth quarter, continuing to outperform competitors like Alibaba and JD.com.
At a price-to-earnings ratio of just 11, there’s a good argument for buying PDD based on its fundamentals.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon and Nike. The Motley Fool has positions in and recommends Amazon and Nike. The Motley Fool recommends Alibaba Group and JD.com. The Motley Fool has a disclosure policy.
