Bottom line: The inclusion of Alibaba’s Taobao marketplace on the latest edition of a US blacklist for piracy signals US is taking a tougher line on trade issues.
What a difference a year makes. It was just about this time a year ago that Alibaba (NYSE: BABA) founder Jack Ma scored a major coup by becoming the first major Chinese business leader to score a visit with incoming US President Donald Trump. (previous post) The pair were all smiles back then, with Ma trumpeting a plan to create 1 million American jobs by helping US businesses selling their products into China over Alibaba’s popular e-commerce platforms.
Fast forward to the present, where Ma isn’t smiling anymore, and Alibaba has even taken the unusual step of accusing Trump of making the company into a scapegoat in a growing tide of US protectionism. The abrupt turnabout hinges on two major developments, the most recent being the placement of Alibaba’s consumer-to-consumer (C2C) Taobao website on Washington’s annual “notorious” list of marketplaces with rampant trafficking in pirated goods. That follows another setback for Ma earlier this month when a plan by his Ant Financial saw its plan for a major US acquisition crushed by the Trump administration.
Ma is probably justified in his outrage at the two recent setbacks, and I suspect that he feels personally betrayed after his buddy-buddy meeting with Trump last year. I personally might beg to differ slightly, for reasons I’ll explain shortly. But the bottom line is that Trump certainly intends to play harder ball with China when it comes to trade issues, which some might say is justified given the relatively lopsided relationship that now exists.
Let’s begin by looking at the latest developments, starting with the inclusion of Taobao on the latest edition of the “Notorious Markets” list published annually by the US Trade Representative’s office late last week. (English article) We should start by saying the inclusion certainly isn’t a first. Taobao appeared in 2011 on the list, which tries to shame marketplaces with trafficking in pirated goods. But then it suddenly disappeared in 2012 after an aggressive campaign by Alibaba, aimed at showing how it was fighting piracy.
Many foreign brands cried foul at the removal, saying pirated goods were still rampant in the marketplace, and lobbied for Taobao’s return to the list. A report from a Chinese commerce regulator criticizing Taobao didn’t help the company’s case, and the site returned to the list last year. Since then Alibaba has been bending over backwards to try to show it is seriously tackling the problem.
Still a Problem
I’m not a user of Taobao, but people I know say it’s still pretty easy to find pirated goods on the site, though you have to use certain tricks and it’s definitely harder than the past. The reality is that traffickers in pirated goods are a slippery bunch, as they can be shut down one day, only to reappear in the marketplace the next under a new name. That’s one of the biggest drawbacks to Alibaba’s business model, and why most other operators avoid this kind of open marketplace and instead sell their own products direct to consumers.
Regardless of the reality, Alibaba has lashed out at the decision and said it has become a “scapegoat” in “the rise of trade protectionism” by the US. That’s quite strong language coming from Alibaba, which is more used to talking about win-wins and how its e-commerce platforms are bringing the world closer together.
The strong language was no doubt fueled in part by Ma’s setback a few weeks ago, which also came as a major blow to Ant Financial’s global expansion dreams. That setback saw Ant rebuffed on national security grounds in its $1.2 billion bid to buy US money transfer specialist MoneyGram (NYSE: MGI). (previous post) Ant only said it abandoned the deal after it become clear it wouldn’t get national security clearance, though observers said the concern was over protection of the huge volumes of user data held by MoneyGram.
In both instances, I have to give my own opinion that the US case wasn’t completely without justification. The “notorious” list is based on the presence of piracy on a website, not the intent of the site’s operator. Likewise, Chinese companies are famous for their fast-and-loose use of their user data, which often includes selling such data to third parties without user consent.
But Alibaba probably doesn’t want to hear those kinds of explanations, and instead are simply crying foul due to this kind of stricter scrutiny. In that sense, I do somewhat agree that China has in some ways received easier treatment from the US in the past on this kind of trade issue than it gives to US companies in similar situations. However you slice it, these two cases do appear to imply future cases will be given higher scrutiny, though it would be an oversimplification to call this just protectionism.