Is Trump To Blame for Alibaba’s Blacklisting?

Another shot has been fired in America’s cold trade war with China. Taobao, the giant e-commerce platform, has been named to the “Notorious Markets” list because of the amount of fake goods that its associated retailers sell. Additionally, Taobao received poor ratings because it has been unhelpful when brands complain about knockoffs. Alibaba, a Chinese wholesale company valued at more than $260 billion, runs the site.

china-flyer

What Is the Notorious Markets List?

The U.S. Trade Representative maintains the Notorious Markets list to track companies known for promoting counterfeiting and piracy. The list has two main goals, the first is to serve as a warning for consumers, and the second is to promote appropriate behavior by the named business owners. Alongside Alibaba, other well-known current and former list members include media distributor Kickass Torrents and clothing retailer Silk Market. Chinese companies feature heavily on the list. By one estimate, 40 percent of Chinese vendors sell either counterfeit or poorly made goods. Taobao reviews frequently point out merchandise that is falling apart or sized improperly.

Conflicting Viewpoints on Targeting Alibaba

The U.S. Trade Representative Taobao was previously included on the Notorious Markets list, but had been removed in 2013, due to increased efforts to police against counterfeiting. Alibaba has questioned the rationale behind the U.S. Trade Representative’s decision. In October, the company submitted comments to the U.S. Trade Representative reaffirming their efforts to fight piracy. Michael Evans, Alibaba’s president, called into question “whether the USTR acted based on the actual facts or was influenced by the current political climate.”

The political climate in question most likely refers to President-Elect Trump’s comments regarding theft of intellectual property by Chinese businesses. Trump has even tied the handling of Taiwan and the existing “One China” policy to whether China is willing to negotiate on fair trade. Given the increasingly heated rhetoric, it is unsurprising for China to blame policy for the attack on their largest international competitor.

China’s Unfair Trade Policies

However, China has a history of engaging in unfair trade practices that goes back decades. American companies lobbied for at least a year to return Taobao to the Notorious Markets list. Both Hillary Clinton and Donald Trump campaigned on fighting harder against Chinese theft of business secrets. In 2013, a U.S. commission reported that Chinese intellectual property theft had reached a figure of approximately $200 billion. The report also stated that if Chinese laws regarding intellectual property mirrored those of the U.S., America could gain more than 2 million jobs. As the global economy tightens up, managing Chinese trade has become a cornerstone of U.S. foreign policy.

How Will Taobao Decision Affect Alibaba

Given that Alibaba is breaking sales forecasts, Taobao’s placement on the list may amount to little more than an annoyance. Its revenue grew by almost 60% in 2016, which is its highest growth since the company went public two years ago. CFO Maggie Wu made a telling point that this was the first year in which mobile users made more purchases than desktop users. Profits were also up by almost a third. The parent company is also branching out from retail. Earlier this month Alibaba announced a partnership with CNBC to develop a reality TV series. The show, called Pop Up, will cover contestants as they compete to establish a successful pop up store. The pop up concept gained popularity over the last few years, and depends on opening a store for a brief period of time in a temporary location.

Alibaba CEO Jack Ma is also working to improve the company’s reach throughout Southeast Asia. Thailand has reached an agreement with Ma to receive assistance for Thai businesses looking to go into e-commerce. Alibaba has built a strong foundation in the region in only over the last year. Chalk this up as yet another impressive Alibaba achievement.

How Will the Taobao Decision Affect Trading?

For most public companies, this decision would be a disaster. Stock prices normally drop when a major brand receives such a negative designation. However, Alibaba has grown beyond these considerations. The company will grow rapidly in 2017, and share prices should rise accordingly. Still, This signals that China is going to be squarely in the Trump administration’s crosshairs for the foreseeable future. Watch for the decision to cause for concern for the Shanghai Index.