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An approaching US / China trade war could smash these ASX blue chips

There’s little doubt that North Korea’s latest intercontinental ballistic missile (ICBM) test launch is a threat to global stability, but a number of ASX stocks could find themselves in the cross-hairs of rising geopolitical tensions in the region.

I am not talking about military conflict. We don’t even need to get that far to see a number of well-known and widely-held ASX stocks directly affected by the standoff as the US is threatening China with trade sanctions in a vain attempt to force the Chinese government to apply direct pressure on North Korea’s president Kim Jong-un.

Trade with China is seen as the lifeblood to Kim Jong-un’s isolationist regime and the country’s only real source of foreign exchange.

Australia will find itself caught in the crossfire of any trade war between China and the US and one of the first casualties will be our miners like BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

The US is the largest buyer of Chinese goods and it accounted for 18.4% of Chinese exports in 2016, which is worth close to US$400 billion, according to data from Statista.

BHP could be worse affected compared to Rio Tinto because Chinese steel exports to the US only make up around 0.8% of total exports (the US is the 25th largest export market for Chinese steel according to the US Trade Department) and Rio Tinto is primarily an iron ore producer (the key ingredient in steel), unlike the well diversified BHP.

I suspect copper exports will be more heavily impacted as the metal is commonly used in a wide range of exported goods from China. BHP is expected to produce just over 1.3 million tonnes of copper this year, but it’s our second-tier copper producers like OZ Minerals Limited (ASX: OZL) and Sandfire Resources NL (ASX: SFR) that could feel the impact on any trade sanctions even more.

Outside of resources, companies with large exposure to the US economy are also at risk with economists saying that the US has more to lose than China from any trade war. This means logistics group Brambles Limited (ASX: BXB) will be another that will suffer from any drop off in Chinese imports into the country

I am not saying a trade war between the two largest world economies is imminent or even probable, but given how unpredictable US President Donald Trump is himself, it would be a mistake to sweep this risk factor under the carpet.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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