The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is holding its ground despite the weak overnight leads from Wall Street but there's one sector that is crashing this morning.
These are ASX coal stocks on news that China is blocking the imports of the commodity. The New Hope Corporation Limited (ASX: NHC) share price, Whitehaven Coal Ltd (ASX: WHC) share price, and even the majority Chinese-owned Yancoal Australia Ltd (ASX: YAL) share price have crashed between 2.6% and 4% each at the time of writing.
The global trade war has come to our shores! The tariff tiff had so far been between US and China (although Trump is also threatening Europe) and Australia is seen as collateral damage.
Start of the Australian trade war?
Not anymore. There're no greater risks that political when it comes to stocks, in my view. This is because such headwinds are the hardest to predict.
News of the Aussie coal embargo broke last night after the market closed and reports suggest that the ships loaded with coal are lined up at several Chinese ports as they will have to wait for up to 45 days before they can get permission to unload their cargo.
The port of Dalian has gone a step further and have outright rejected the shipments from Australia, while those from Indonesia and Russia are allowed to unload as per normal at all ports around the country.
Further, China is reported to have slapped a quota on Aussie coal entering the country at 12 million tonnes. No word over the time frame of the cap.
What's eating China?
The Australian government is seeking clarification from China but it's understood that the Asian giant, and our most important trading partner, is doing this to punish us as coal is now Australia's biggest export.
The move caused our dollar to crash by US1 cent, and that's a big move. This should shield us from some of the economic fallout should the embargo remain for longer than expected, but there's little doubt our economy will soon be hurting unless the situation is resolved.
No one knows for sure exactly what triggered the draconian action from China. It could be our ban on using Chinese equipment maker Huawei in our 5G buildout or accusations from the Australian government that China was behind the recent cybersecurity breaches.
On the other hand, some suggest the move was to prop up China's coal miners, although I won't be surprised if there are multiple reasons for the new restrictions.
Foolish takeaway
If tensions continue to grow, there are worries that China could expand the "blacklist" to include Aussie iron ore.
But it might end up being a case of cutting your nose to spite your face. Restricting ore from Australia will drive up costs for Chinese steel mills, which are already suffering from poor profitability.
No matter how this plays out, political risks are not factored into the mining sector and that means the share price advances for these stocks may be capped for now.
