Chinese Stocks Surge on Tariff Announcement Amid Stimulus Hopes

Major Chinese companies like Alibaba (NYSE: BABA), as well as those exposed to China like Estee Lauder (NYSE: EL) and Nike (NYSE: NKE), experienced impressive gains on Monday. As of 2:20 p.m. ET, shares rose by 6.2%, 5.2%, and 2.9%, respectively.

After suffering through severe downturns, Alibaba is making a comeback while Estee Lauder and Nike faced particularly challenging weeks recently.

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Despite expectations, shares of China-exposed companies rose following President Donald Trump’s announcement of 25% tariffs on steel and aluminum imports. Here’s why that matters.

Tariffs Ignite Speculation for Economic Stimulus

President Trump declared these tariffs over the weekend to counteract other countries that impose taxes on U.S. goods. While the U.S. imports minimal steel from China, the country is a significant global exporter. Countries receiving Chinese steel often send their own higher-priced steel and aluminum to the U.S., affecting the overall market.

Importantly, Chinese semi-processed steel often makes its way to countries like Vietnam for further processing before entering the U.S. market as “Vietnamese steel.” Thus, the new tariffs could reduce Chinese steel exports by raising prices on imports to the U.S. market.

This scenario raised investors’ hopes that the Chinese government might respond with increased domestic stimulus to offset losses from industrial exports. Notably, there’s a crucial political meeting scheduled for March that could bring announcements of new stimulus measures.

If consumer spending rises in China, it would benefit companies like Alibaba, Nike, and Estee Lauder. In the fiscal year 2024, Nike generated over 15% of its revenue from China, while Estee Lauder has suffered a significant decline in makeup sales in the country. In 2021, 34% of Estee Lauder’s revenue came from China, highlighting its importance before the downturn.

Both Estee Lauder and Nike are bouncing back after particularly rough weeks; Nike was downgraded by analysts, and Estee Lauder’s stock fell sharply after their fiscal second-quarter earnings report.

Image source: Getty Images.

In addition to tariffs, Alibaba is seeing renewed interest in its technology. Following the recent launch of DeepSeek’s R1 artificial intelligence (AI) model, optimism surrounding Chinese tech stocks has risen. DeepSeek’s success has underscored the competitive strength of China’s technology sector.

Alibaba has also developed a series of open-source AI models called “Qwen.” Notably, researchers from Stanford and Berkeley reported using Alibaba’s Qwen2.5-32b-Instruct model as a base for a new AI reasoning model, developed for only $50. While OpenAI has advanced its AI offerings, the competitive nature of this new model can support sentiment around Alibaba’s capabilities.

Forecasting the Future of Chinese Stocks

Chinese stocks have recovered over the past year from a prolonged downturn, largely driven by speculation about government stimulus. Despite some proposed measures, skepticism remains regarding the effectiveness of indirect infrastructure investments over direct consumer subsidies.

Leading Chinese tech stocks remain undervalued compared to their U.S. counterparts, presenting potential opportunities. Consumer discretionary brands like Nike and Estee Lauder are particularly vulnerable but could thrive if the Chinese government introduces more substantial stimulus measures in March.

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Billy Duberstein and/or his clients hold no positions in the stocks mentioned. The Motley Fool is part of the investment plan advised by analysts for Nike and Alibaba Group. Please refer to The Motley Fool’s disclosure policy for more information.

The views and opinions expressed here reflect those of the author and do not necessarily represent those of Nasdaq, Inc.