Renowned tech investor and Palantir Technologies co-founder, Peter Thiel, has offered a bold assessment of President-elect Donald Trump’s proposed 60% tariff on Chinese goods. In a recent interview with The Free Press, Thiel predicted a significant negative impact on Chinese companies and the broader Chinese economy. However, he surprisingly downplayed the consequences for American consumers, suggesting that the impact would be ‘mildly negative’.
Thiel’s analysis hinges on the anticipated shift in manufacturing. He posits that companies will relocate production from China to other countries, most notably Vietnam. While this shift would undoubtedly cripple significant sectors of the Chinese economy, the impact on American consumers, according to Thiel, would be minimal. From a geopolitical perspective, this manufacturing shift, in his view, aligns strategically with American interests.
This prediction comes amidst significant market volatility. Earlier this year, Chinese stocks experienced a robust rally, culminating in the Shanghai SSE Composite Index reaching its highest point since September 2023. However, the specter of Trump’s proposed tariffs – potentially reaching 60% on Chinese goods, coupled with additional levies on other nations – has cast a long shadow over these gains.
The immediate market reaction following Trump’s election victory was telling. China-linked ETFs, which had enjoyed a nearly two-month rally, experienced a sharp decline on November 6th, 2024. Specifically, KraneShares CSI China Internet ETF (KWEB) fell 2.01%, iShares MSCI China ETF (MCHI) dropped 2.70%, and iShares China Large-Cap ETF (FXI) saw a 2.94% decrease. This downward trend extended to individual U.S.-listed Chinese stocks, including giants like Alibaba (BABA), JD.com (JD), Baidu (BIDU), NIO (NIO), Li Auto (LI), and XPeng (XPEV), all experiencing trading declines.
The imposition of such substantial tariffs could significantly hamper China’s economic growth, directly impacting the performance of China-focused ETFs, particularly those concentrated in the technology sector and large-cap companies. This reduced attractiveness will likely lead to decreased investor interest and further market instability. The situation is further complicated by contrasting viewpoints.
While the short-term economic challenges are undeniable, some experts believe China may attempt to leverage Trump’s return to power for strategic advantage. Chinese President Xi Jinping recently expressed China’s willingness to collaborate with the U.S. government, regardless of the administration. This suggests a complex geopolitical game is afoot, adding another layer of uncertainty to the already volatile situation. The coming months will be crucial in determining the true impact of these proposed tariffs on both the Chinese and American economies.
