Nvidia Chip Curbs Spur Market Caution; Chinese Suppliers Mock Tariffs on TikTok
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Bloomberg Audio Studios. Podcasts. Radio. News. Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Krisner. On today's episode, we'll look at how Chinese manufacturers are using TikTok influencers in a clever ploy to avoid U.S. tariffs. In a moment, we'll speak with Colin Murphy. He is China EcoGov reporter for Bloomberg News in Beijing. But we begin this morning with markets.

With few signs of progress in negotiations on trade, the U.S. equity market drifted lower. We had the S&P 500 dropping about two-tenths of one percent. Joining me now is Ken Stern. He is president of Lido Advisors. Ken joins me here in the Bloomberg Interactive Broker Studio in New York.

Thank you for joining us. I'm curious to get your sense of where we are right now in terms of the price action in the market. We're up one day, we're down the next. I think we can agree we've seen a lot of volatility. And I'm curious as to how you're coping with this. How are you understanding things right now? Yeah, well, I feel like we've seen this movie and we're right in the middle of it. And I think making any knee-jerk reaction is probably not the best idea. The fact of the matter is, though, is...

What you need to look at is the macro. And the macro is when something comes into your purview, you have to look at it agnostic of some of the microeconomics that's going on. I think we have more behavioral economics happening than micro.

We've got some data points today that I'd like to explore if we can. The first piece comes from JPMorgan Chase, and it indicates that through Monday's close, retail investors have pumped in about $17.7 billion into equities since President Trump unveiled those tariffs.

So retail investors seem to be ignoring some of the warnings coming from the street. Then if you look at the latest fund manager survey from Bank of America, economic prospects, the most negative in about three decades. So it seems as though there is a bit of bifurcation happening. What the retail crowd is expecting versus what the institutional crowd is expecting. How are you making sense of that?

But I'd have to really understand what the baseline for what money comes in from retail investors anyways, because that actually might not be the greatest data point and the greatest stamp. The fact is, though, is we tend to see a knee-jerk reaction, and then it all kind of plays out. And if you look at it pragmatically, and you stop trying to read tea leaves in the short term,

If there is an economic slowdown, earnings will contract. You could argue multiples are high. You could argue if that's the case, that perhaps...

we're going to first before earnings go down, we're going to sell. I mean, consumer sentiment, you just said is is really low. And that tends to be on a contrarian perspective, a leading indicator. So if you look at this, you don't want to time the market, you might want to have some protections in you might want to hedge, you may want to think about protecting your downside.

but you don't have the interest rate concerns that we had anymore. Even if there's potential inflation, I don't think even people are talking stagflation, although it's popular to talk about. It's a possibility. It is a possibility. So if a client comes to you on a day when they see Apple down 10% and they say, I'd like to take a position, would you advise them to hold off? Do you think there's more downside? Another maybe leg lower for Apple or a name like that?

Hmm. That's a really interesting question. What I'd say is buying any one stock as much as we love Apple or any of the others is still gambling compared to building out an incredible portfolio. That said, if you like Apple and Apple is in your purview and it hits that, I don't think you should have your behaviors impact what your price target is. You may want to, you may want to hedge it a little bit,

But the fact of the matter is, do you really think that the long-term trend is broken? Do you think we're going to stop buying smartphones? Do you think we're going to stop traveling completely? Do you think that the mobility of the world, United States included, is done? Do you think we're going to stop utilizing healthcare?

Recessions contract. And they usually provide, at least if you believe in a long-term market cycle, they usually provide a really great entry point. But a lot of the conversation is around a major reordering of global trade, questions about dollar as a reserve currency, a real level of risk now in the treasury market. So we're in a new piece of territory here. Totally.

And I don't want to minimize that because that is exceedingly important. But if I would have told you a year and a half ago, hey, rates are going up 11 times, what would you do with your money? It probably wouldn't have been long in the market. What do we... We've contracted now...

what, most of last year, but still, I mean, when you look year over year or year over the last two years, we haven't contracted to such a point that you're saying that we've really like thrown the baby with the bathwater out. So if you're constructing a portfolio then, what's wrong with buying the S&P outright?

I don't think there's anything wrong with it. In fact, I think in many cases, you know, fees is an enemy of performance. And so if you can buy an efficient S&P portfolio and you like the entry point, I think you should. But I don't think it should be an all or none. I think that you should be staging in your buys

and averaging. - What about being more diversified globally in this environment right now, especially, I don't know whether it's Asia, Europe, whether that still looks attractive, I don't know. I mean, that's been a pretty phenomenal run that we have seen in Europe so far this year, but do you want to be diversified globally right now?

That is a very interesting question. So I think that you have to look at the overall growth prospects and you have to we've been talking about the rest of the world being a great value for many, many years. And if you remember the beginning of this year, the the world economies in the world market started out in a pretty good fashion. And now here we are in this turmoil.

I think it's much more important right now to not be making major, major bets. And I think you should be looking at how this all unfolds. If you're going to step in, I think you should step in lightly. It's a dynamic environment, you know, and maybe a little mercurial too. We heard from Nvidia after the bell, the chip maker saying that the government is going to require a license for Nvidia to export one of its chips, the H20 to China. And as a result of this,

first quarter charge of around five and a half billion dollars associated with this H20 product. This really goes to the tension between the U.S. and China on artificial intelligence. How are you playing AI as a theme? I don't think I've met anyone recently that is not invested in this as a theme for the foreseeable future. How they are exposed is a different story.

Every time we've seen these new ideas come out, you see all these great investments and all these great markets, and then it starts to consolidate and starts to consolidate and starts to consolidate. A couple months ago, before the tariff conversation, we were talking about data centers and chips. We were talking about changing the world. Power, too, right? Power. Power.

The question is, has that theme changed? Have we really changed the dynamics so much that that has changed? And so whether you mention one chip stock over another chip stock, the question is, do you believe in the secular trend of AI? And I think unless you have...

Such incredible insight on one stock over another. You've got to look at the sectors and the indexes and decide how much you want to be over or underweight. So you've been in the markets for a while, I would assume. Have you ever seen a period like this that is kind of giving you a little bit of an analog here, how you may approach what we're dealing with now? Is it like the GFC? Is it like what we had around COVID? I mean, how are you making sense of this relative to history?

COVID was an anomaly, right? I mean, here we had this shelter-in-place order. All of a sudden, the markets shot first. We went straight down. And then there was, within a couple of days, a government response. And that stabilization caused for the markets to V back up. So you had a point down and straight back.

Here, I mean, we talk about a trade war. It usually doesn't abate overnight. Usually there's a lot of give and take. So I think to have this idea that we're going to have a V formation would be something more of an outlier. You know, maybe it's a U. Okay.

Okay, so the Fed, I'm sure, is a part of your thinking on this. What are your expectations here? How is the Fed going to handle this situation? We talked about stagflation as being a possibility. If that's the case, the Fed's on the sidelines for the foreseeable future, maybe more concerned about inflation than growth. Yeah, they're really in a pickle, right? I mean, they're supposed to be agnostic to what directive have we given them? Inflation is still higher than their target.

So if inflation is still harder than their target, they're not supposed to be ebbing and flowing

on the whims of the market. So they're in a pickle. However, do you really think rates go higher today? It's a probability question. Do you think rates stay the same? Do you think rates go down? And when you start thinking of those probabilities, it may not be today or tomorrow, but what usually happens is there is a tomorrow. The sun will rise. There will be some kind of negotiations. There's negative to positive negotiations.

I mean, we don't like what's going on. I mean, we were all surprised in the bond trading. We were all surprised in the currency trading.

could the U.S. dollar be knocked off its block as a world safety currency? There's some real questions that we need to get through. So when you have conversations with clients, number of phone calls that happen during the course of the day, is there something that you hear yourself repeating again and again and again in these conversations? Yeah, we have to make sure that whatever we've created

and why we created it, we don't let our behaviors get in the way of it.

Timing the market we know is not a great idea. We believe in the long-term effects of the market, the slope being positive. We believe in global expansion and global growth. But there are times that you want to push the pedal down, and there are times that you want to be more conservative and wait and see. This is a time to be a little bit more hedged in our opinion. All right, Ken, we'll leave it there. Thank you so much for joining us. Great conversation with Ken Stern, president of Lido Advisors. Joining us here on the Daybreak Asia podcast.

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where money means more.

In one video, a user named Luna Sourcing China stands outside a factory. She says makes Lululemon yoga leggings for $5 to $6. That's even though they retail here in the U.S. for more than $100. Who are the suppliers behind Lululemon? Some of their yoga wear are actually from Xianglong Clothing and Hong Qisheng Clothing. And guess what? Both factories are located in Yiwu here. And these two factories also supply clothing for Hila and Under Armour.

Let's bring in Colm Murphy now. He is China EcoGov reporter for Bloomberg News. He joins us from our studios in Beijing. Thank you so much for making the time to chat with us. Can we begin, Colm, by having you break down the process? How is this actually happening?

OK, so basically, first thing is that TikTok itself is not available in China. They're using a domestic app here called Douyin. So in order for the Chinese influencers to get their messages on TikTok, which is already quite surprising.

We are suspecting that there's some element of collaboration here, some sort of planning. So basically what they're doing is they are making short videos to describe some of the reasons why the U.S. customer and the U.S. buyer has to pay so much money for products that are available in China at knockdown prices.

And these messages are basically trying to suggest or encourage not necessarily ways to avoid the tariffs, but to, let's say, minimize the impact of the tariff. But the deeper meaning, I think, is to...

to show and to illustrate that China is pushing back against these tariffs, to show that this is kind of mocking in a way and to undermine the Trump tariffs and saying, hey, look, we have come up with these innovative ways to showcase and to tell you about our products and we're going to swamp TikTok in order to do that. Yeah.

So it seems maybe to be less about selling goods to U.S. consumers and more about creating outrage among the American consumer, right? And how tariffs are impacting the prices of the Chinese-made products that they are accustomed to. Definitely. I think, you know, there is this, as I say, broader push by this campaign, which, you know, has...

picked up strength and exploded basically over the weekend. We've had these types of videos from merchants in China saying, you know, we produce this project and you should buy from us. I mean, they've been around for a while. But what we're talking about in this particular instance is, first of all, the sheer volume of such products.

sort of videos and messaging has gone through the roof. A lot of them display very similar characteristics. They're very polished. Most are speaking in very sort of sophisticated use of language and in English, of course.

And this all happening over this short period of time. So it's hard not to conclude that this is definitely an effort to, if not at the very least, sort of mock the U.S. efforts on tariffs, but probably to undermine in a way the Trump tariff regime and call the attention of

of the ordinary American citizen to like how the tariffs will and can impact their bottom line. And it's a little ironic in the platform, right? During his first term, Trump wanted to ban TikTok in the U.S. or force some type of change in ownership. That position later became reflected in U.S. law. But I believe it was March 2024 when President Trump reversed his position and began advocating against banning the app

on the grounds that, okay, we needed it. But this seems to be to the point of maybe there's a national security issue involved here. Is that saying too much?

Well, I would just say it does show that there has been a marked increase in the ability of the Chinese message to get to ordinary citizens in the US. And on the whole, these messages have been pro-China. So, for example, we have this latest incident, which it is ironic because right now TikTok is still under close scrutiny with the talk of a ban or a sale.

So for this to be happening on this platform right now is somewhat curious. But, you know, it does also remind us of something that happened a couple of months ago, which was when the Chinese app Xiaohongshu or Red Note suddenly became hugely popular when the so-called TikTok refugees were fleeing to that app when the threat of the ban was imminent.

And so this was also the first time when we saw a real sort of outpouring and outreach from Chinese citizens to their American counterparts, exchanging information. We saw lots of Americans saying as a result, oh, what they've been telling us about China is wrong all along. It's very developed. It's very sophisticated and so on and so forth. So you did have some element of influence and changing of perceptions.

And this again, this particular campaign, shall we say, looks like hitting similar points and that we do have reaction from Americans on the ground who are saying, you know, I never realized that this was the reality. And maybe it's not anger, but it's definitely, you know,

increasing awareness and, in some cases, frustration at some of the narratives that they seem to feel have been thrown on them by their own government in DC. So, the packages with merchandise shipped from China with a value at less than $800 have enjoyed the de minimis exemption from these added duties?

And we have seen the impact that that has had on online Chinese retailers like Timu and Shein to sell super cheap items to American consumers. Now, the president has kind of taken executive action here to end that loophole. And I think that begins on May the 2nd. So I'm wondering just on the commerce side, whether this let's call it a workaround is facing extinction.

Yes, I think, you know, I mean, whether this would actually yield to a spike in sales for the Chinese merchants, I would doubt that at this point for various reasons, including that, you know, a lot of these are not the equivalent in terms of they don't come with the brand that they say that they have. So, you know, I mean, how many people are going to turn around and say,

start buying more because of this campaign, it's a big question mark. And also, as you mentioned, the de minimis rule needs to be clarified and whether that's going to stay or not. But I do think another point here is like, yes, this is mocking of the US system. But at the same time, there's also something that we need to reflect from the China side. And that is,

there are a lot of people here who are dependent on exports, dependent on selling goods to the US. And in another way, we could interpret this as being a sign of desperation also on the Chinese side. We have these vendors who are looking at possible bankruptcy or possible difficulties commercially. And this could also be interpreted as an effort by them to try to change their situation.

While on the one hand, it is definitely, you know, poking fun and mocking a little bit the U.S. and the tariffs that have been introduced and stopped and paused and reintroduced by Trump. But there's also a message for the Chinese as well, probably not intentionally, but it does remind us that there is a lot of people here who do support

stand to suffer if the tariff regime goes into full effect and remains so for an extended period of time. Is it too much to say that the government may be involved in this? Is there any evidence that that may be happening? Well, that's always super difficult to pinpoint, right? Nobody's going to come out and say we are allowing this to happen. But, you know, I mean...

There is the element that typically in China, like if there's something online that the government doesn't like, it will get shut down pretty quickly. And then, of course, there are some sort of legal implications here. For example, many of these brands that are being exposed would have nondisclosure agreements in place with their suppliers. And also, obviously, trading in counterfeit goods is not legal.

legal activity. So the fact that these sort of videos are allowed to stay online, even if it's just for a short period of time, it does sort of suggest some sort of tacit

approval at least, or perhaps, you know, if we want to be generous, maybe it hasn't filtered to the right authorities yet and there will be a crackdown. As I say, it did come to the fore over the weekend. It is very early to say definitively what are the factors at play

We don't have a comment as of now from the company, from TikTok, explaining what's happening. So in the absence of all that, I think we have to hold back judgment for a little while. But coming at this time and in the volume and the quality of the videos, I can't help but be quite suspicious that this is some sort of

collaboration or concerted effort to send a message. Colm, thank you so much for helping us unpack that story. That is Colm Murphy, China EcoGov reporter for Bloomberg News in Beijing, joining us here on the Daybreak Asia podcast.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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