One thing you have to understand about President Trump is that he’s a “John Wayne” American. He enjoys flexing his muscles just as much as he loves using them. Unfortunately, Baidu Inc (ADR) (NASDAQ:BIDU) is learning about this the hard way. No matter how you view Trump, you are advised to be ultra-cautious on Baidu stock.
Making headlines throughout the world is the Trump administration’s tariffs on Chinese goods. Specifically, the President signed an executive order restricting $60 billion worth of imports within the technology sector. The impetus behind the tariff were allegations of intellectual property theft. In turn, China signed its own retaliatory tariffs, creating fears of a full-blown trade war.
Naturally, BIDU stock — considered the Chinese Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) — cratered on the news. But it’s not just BIDU. Many other Chinese companies, including Alibaba Group Holding Ltd (NYSE:BABA) and Tencent Holdings Ltd (OTCMKTS:TCEHY), corrected sharply.
To be fair, market volatility isn’t just a Chinese problem. The counterparts to Baidu stock, including GOOGL, and to a lesser extent, Amazon.com, Inc. (NASDAQ:AMZN), are also down sharply. However, I believe that American companies’ present volatility is due to different reasons, namely, that the broader markets are long overdue for a pullback.
President Trump might make America great again, but it won’t come without some blood, sweat and tears. But BIDU stock is in an entirely different situation. John Wayne has rolled into town, and he’s ready to shoot first and ask questions later.
Baidu Stock in for a Rude Awakening
Multiple etiquette rules exist when conducting business in China. I can summarize the extensive list by stating this: Chinese are not westerners. Our finger-pointing, butt-slapping mannerisms may work in America, but they’re not going to go far in China.
The reason people are so concerned about Trump’s foreign policy is that the President is a throwback, an anachronism. He’s broken many rules of Chinese etiquette, including what I believe to be the most important one: causing someone to lose face.
That puts China, and by logical deduction Baidu stock, in between a rock and a hard place. Since Chinese culture cares deeply about saving face, their government had to respond with retaliatory tariffs. But the magnitude of the tariffs demonstrate that China fears the U.S., putting them into a deeper quandary.
While the White House announced a $60-billion import tariff, Beijing shot back with a limp $3-billion tariff. Surely, I’m not the only person that noticed the 20-factor difference.
Also, as CNBC’s Arjun Kharpal has pointed out, China’s tariffs won’t pressure American tech firms. Our mainstay names like Facebook, Inc. (NASDAQ:FB) or Google are already banned in China; thus, banning them more is an oxymoron.
Ironically, it’s the communist government’s own draconian social policies that are hurting investments like BIDU stock. China doesn’t have the leverage to hurt us because we’re not addicted to their revenue stream — thanks to communist shortsightedness, that revenue stream doesn’t exist.
I’m sure that Trump’s brusque behavior is gravely insulting to Chinese officials. They want to fire back, but what are they going to do? The big thing they have on us is cheap junk products sold at Walmart Inc (NYSE:WMT).
China can escalate this trade war, but they won’t.
BIDU Must Adjust to the New Reality
Chinese companies are often prefixed. As previously stated, BIDU is the Chinese Google, or Alibaba is the Chinese Amazon. To get rid of that somewhat backhanded qualifier, these firms need to expand beyond their borders. That means taking over America, but that’s not going to happen with John Wayne at the helm.
The China as the future economic panacea argument is overrated. By 2021, economists forecast that Chinese GDP per capita will amount to $12,543. I’m sorry but that’s just poverty level for the U.S. or any western/developed country. We can make a valid argument that China is still a developing nation. To join the developed club, they’ll need western acceptance.
In that endeavor, the Trump tariff is a huge setback. Yes, it will hurt us, but you better believe that it will hurt the Chinese a lot more. And this is why I can’t endorse BIDU stock under this new reality. If Baidu or any of its ilk want to be known as leaders as opposed to Chinese leaders, they have to compete in the big leagues (i.e., America).
Now, the ball’s in China’s court, and they have no good options. They can acquiesce, admit wrongdoing, and lose tremendous face — something they absolutely won’t do. They can retaliate but will then incur the wrath of John Wayne’s six-shooter.
Or, they can do what they’re doing now: make impotent political statements with weak, ineffectual tariffs. But don’t believe that these ceremonial exercises will do anything positive for Baidu stock. This is going to be a long, rough ride.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.