U.S. takes down Chinese spy balloon: The impact on stocks and what it means for U.S.-China relations

Yahoo Finance’s Rick Newman joins the Live show to discuss the Chinese spy balloon and what its takedown means for the China-U.S. relationship.

Video Transcript

- The number one thing to note today is the fallout from the United States taking down the Chinese spy balloon. Let's take a look at how this is impacting some China stocks right now here. And we've got the NASDAQ Golden Dragon index pulled up here for you. A few of these, of course, are going to be the US traded companies. But you can see even some of the moves that we're seeing pre-market here as labeled underneath, Alibaba, that's down pre-market by about 2.3%. jd.com also about the same on a percentage basis. Pinduoduo, that's also down by about 3.6%.

Now, let's remember this comes in the context of many of these names over the course of this year thus far having been up. In fact, you'd be hard pressed to find any red on this screen. We've got three spots there particularly. But with the context of Alibaba being up 20% year to date at this point in time, a lot of these are seeing pre-market moves to the downside here this morning. And so the impact and fallout of this Chinese surveillance balloon will hit more than just stocks.

Let's bring in Yahoo Finance senior columnist, Rick Newman. Rick, good to have you here with us this morning. All right, help us break this down from the US-China relations standpoint.

RICK NEWMAN: It's not a surprise that China would be spying on the United States. What is a surprise is that they would either do it so blatantly as to deliberately send this balloon across US territory or that they would screw up so badly. And we don't really know which it was. I guess the prevailing theory for now is that China just screwed up. This either was not supposed to enter US airspace. It was perhaps supposed to come close. Or something else went wrong.

So the most obvious bit of blowback here is that Secretary of State Tony Blinken, he was supposed to be in China over the weekend. He canceled that trip of course. Now that will probably get rescheduled. But I think both sides realize that they want to get back to whatever you might call the normal state of relations between the United States and China at this point. US relationship with China has been hardening during the last several years. It began with President Trump imposing tariffs on Chinese imports. And Biden has taken a hard tone toward China as well.

And this comes as Chinese President Xi Jinping, he's now the so-called president for life. He's entering his third term. There probably will be a fourth and a fifth term if he lives that long. And he's become a hardliner. So the United States and China need to talk to each other. But they're not saying much for the moment.

- What's interesting about this whole situation is, I mean, I think it's sort of unspoken but well recognized that there's Chinese spying in the United States in a number of different ways, right? There's probably US spying in China in a number of different ways. I guess it was just that this was such a visual and blatant reminder that is happening, right?

RICK NEWMAN: And so clumsy and so visible. I mean, the public almost never gets to see spying efforts flying across the sky and then get to see a missile shooting the balloon down. So that image there shows a lot of equipment on the bottom of that balloon. And people who think they have this all figured out need to remember that there's a lot we don't know. There has been a lot we haven't known the whole way along.

So the Pentagon now is going to be recovering the debris from this balloon from the Atlantic Ocean. And they're going to figure out what was on there. Was it optical sensors, radar sensors, cameras, aural sensors, technical sensors? What exactly were the Chinese trying to figure out with this balloon? And as many analysts have pointed out, China does have reconnaissance satellites. So they probably were not sending this balloon across the United States just to look around. They can probably do that with cameras on satellites in orbit.

So what exactly was this balloon supposed to accomplish? We will perhaps get some additional information about that. But remember that we gather intelligence on other countries' intelligence gathering capabilities. And the Pentagon is not likely to publicly announce everything it's able to learn about what this balloon was actually up to.

- Yeah, if it was indeed trying to track weather patterns, probably would have had a better chance of being a customer of Planet Labs. Rick, when we think about what the implications of this are now going forward, I mean, there's already been a trip that was now scrapped from one US representative that was going to be making a trip to the Asia-Pacific region. What does this mean now for kind of mending or at least opening the door for discussion between the two entities?

RICK NEWMAN: Well, the two countries are going to remain talking. When something like this happens, I mean, let's remember, this is a gigantic embarrassment for China. Either they got caught doing something they didn't intend to get caught at or they just simply screwed up big time. So both sides have to address their domestic audience when something like this happens. So the Biden administration has to appear tough on China. And of course, they've been getting bashed all week for not shooting the balloon down sooner.

I guess the critics think that they should have just sent whatever equipment was on there raining down over Kansas, or Montana, or North Carolina, or wherever it ended up. I think letting it drift into the ocean before shooting it down seems to have been the right call. China has to address a domestic audience that it realizes China is now facing some embarrassment. There have been worse incidents between the United States and China. And these nations do find a way to get back to talking to each other once everything settles down.

But it's really important to underscore that the relationship between the United States and China is growing increasingly tense. Just one example of that we've seen from the Biden administration are these new export controls on the sale of semiconductor technology, advanced semiconductors, and any kind of intellectual property associated with that type of technology. That is one of the toughest sanctions the United States has ever put on China. And some other nations are now joining in on that.

So some people say we're entering kind of a Cold War between the United States and China. I think that goes a little bit too far at this point. There's still a lot of trade between the two countries. But this is a tense relationship. And it's going to stay that way.

- Rick Newman, appreciate the analysis.