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Trump’s tariffs threaten to send China-facing stocks downhill

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U.S. president Donald Trump announced plans to impose a 25% tariff on steel imports overnight in the first shot of an imminent trade war with China that threatens to derail the global economy by potentially shrinking global trade.

President Trump wants to curtail Chinese steel imports in order to protect the US’s steel industry from overseas competition and boost traditional blue-collar manufacturing jobs, although the potential for other nations to respond with their own tariffs on U.S. exports could hurt its own economic output.

Australian steel maker and exporter BlueScope Steel Limited (ASX: BSL) could be slapped with the tariffs, alongside steel and aluminium producers in other countries such as Canada, Mexico, Korea and Germany.

BlueScope manufactures steel in Australia and exports significant volumes to North America, although its Ohio-based North Star steel mill is a potential beneficiary of the tariffs via an improved competitive position.

The U.S. executive has also announced plans to put a 7% tariff on aluminium imports that are a key manufacturing ingredient across a variety of products such as drinks cans, kitchen utensils, home building products and aeroplanes.

More importantly the Australian economy is vulnerable to Trump’s policies because it needs Chinese economic growth to fuel demand for the commodities it produces, including the key steel-making ingredient of iron ore and other resources.

A worst case scenario is that a Trump trade war escalates and China introduces tariffs on Australian exports in a wild card chain of events that could damage a huge amount of companies listed on the ASX.

Executives at metals mining giants Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP) and South32 Ltd (ASX: S32) will also be especially nervous about the prospect of a reversal in the recent rebound in commodity prices, while a full blown trade war could slam many of the consumer-facing share market stars exporting to China.

However, making investment decisions in anticipation of a politically-driven market correction has proven a costly blunder many times recently, as anyone who sold stocks in response to the UK’s Brexit vote or election of President Trump will testify.

In other words a substantial sell off across sectors outside the industrials sector may prove a buying opportunity for those brave enough to buy when there’s blood on the streets.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. 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 Scott Phillips.

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