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What stocks are most vulnerable to Trump’s US$50bn China trade war?

Hang on Fools! The expected sell-off in the share prices of stocks on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is likely to be indiscriminate and broad-based after US president Donald Trump fired the first salvo in the looming trade war with China.

However, the pain to Australian companies won’t be uniformly shared as some ASX-listed entities are more likely to be caught in the cross-fire than others.

This spells opportunity for those who can use the panic sell-down to buy the right stocks at a nice price.

Having said that, there are still a number of unknowns at this stage. The US Trade Representative has 15 days to draw up a list of specific imports worth at least US$50 billion from China that will face punishing tariffs, while China has yet to fire a retaliatory shot.

If anything, the Chinese response has been reasonably diplomatic. You can bet if the roles were reversed, Trump would not know how to bite his tongue – he’s just not a tongue (or Tweet) biting type of guy.

Trump’s fresh round of tariffs against China will put our miners BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) in the direct firing line as major raw material suppliers to Chinese industry. The losers from China’s potential tariff tantrum are a little less obvious.

China’s reaction so far is the right one. It is positioning itself to negotiate during this 15-day window. But make no mistake, if China can’t get tariffs watered-down, the claws will come out!

The question then is what will the Chinese target? It has a pretty wide number of levers it can pull to retaliate and it seems that agriculture and aircrafts are likely industries China could slap import tariffs on if it wanted to maximise the pain for Trump as that will directly hit US states that have helped put him in the oval office.

Bloomberg reports that agriculture is one of the few sectors where the US runs a big trade surplus with China.

If the Asian giant were to target agriculture imports, it may impact on sales of seed and herbicide supplier Nufarm Limited (ASX: NUF).

Another way to deliver payback is for China to switch from using Boeing aircrafts to European-based Airbus. That move will cost American manufacturing jobs, the very ones Trump is championing to his support base.

This means less US demand for aluminium, which could impact on Alumina Limited (ASX: AWC) through its joint-venture with US aluminium giant Alcoa Corporation.

On the other hand, a shifting in orders to Airbus could also mean that the JV can redirect supply to the EU now that Trump has exempted the EU from his earlier round of steel and aluminium tariffs.

The ex-reality television star sure knows how to keep audiences on the edge of their seats! Investors need to watch this space very carefully.

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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 Scott Phillips.

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