There’s a slow-motion-train-wreck quality to BHP Billiton’s turn in the Trumpworld spotlight.
Shareholders of the mining giant loved seeing chief executive Andrew Mackenzie and chairman Jacques Nasser get a slot in the world’s most-coveted schedule.
Their journey from Melbourne to New York will pay huge dividends if they can steer Donald Trump away from a Chinese trade war, win a piece of his infrastructure bonanza and/or expand BHP’s dominance of the US shale market.
But it’s hard not to worry that the Trump Tower drive-by will crash — injuring not just BHP, but Rio Tinto and Australia’s other mining giants. The Dead Man’s Curve will be China, a nation Team Trump seems determined to put in its place.
On the one hand, both companies invest and provide jobs in the US — prerequisites to winning Trump’s ear and favour.
On the other, the scale of their ties with The Donald’s nemeses in Beijing will almost surely put BHP and Rio Tinto on a collision course with Trump’s twitter feed.
Imagine the day Trump gathers that the US has less leverage over President Xi Jinping’s kingdom than be believes. China could meet Trump’s threatened 45 per cent tariffs with a sharp yuan devaluation, dumping its $US1.1 trillion of US Treasuries or disrupting America’s supply chain (Hey Apple, good luck making iPhones without our rare-earth metals!).
Presumably, Trump’s trade team, which includes billionaire Wilbur Ross, will warn him about the co-dependency and mutually-assured-destruction that binds the Group of 2 together.
Once this dawns on Trump, watch out. It doesn’t require a vivid imagination to predict how incredulousness might manifest itself on @realDonaldTrump at Australia’s expense. For example: “BHP & Rio Tinto helping the Chinese enemy by providing iron ore to build navy ships, planes, tanks & skyscrapers! Not fair Australia! Sad!”
The ships, planes and tanks issue could loom large, if this week’s confirmation hearing for Rex Tillerson, Trump’s choice for secretary of State, is any guide. Weeks after Trump enraged Xi by taking a call from Taiwan’s president, Tillerson raised the spectre of the US denying China access to contested South China Sea islands. That suggestion alone probably just added a zero to Beijing’s already skyrocketing military budget.
In some ways, Tillerson, the former head of Exxon Mobil, running US diplomacy might cheer BHP and Rio Tinto shareholders. BHP, the No. 1 overseas investor in US shale, has been upping its North American oil and gas interests. It’s also a Rio Tinto partner in an Arizona copper project. Having a guy who really knows these businesses running the show in Foggy Bottom has its benefits.
Yet as Trump flirts with a return to the Smoot-Hawley Tariff Act days of the 1930s, it’s worth recalling another episode from that decade: the “Pig Iron Bob” controversy. The reference here is to a 1938 political dispute over exports of so-called pig iron, which is tapped from a blast furnace, from Australia to a Japan colonising Asia. At the centre of what historians call the “Dalfram dispute” was Attorney General Robert Menzies, who would later become prime minister.
Dock workers at Port Kembla, New South Wales, refused to load the steamship SS Dalfram, believing they’d be complicit in facilitating Japan’s China invasion. For his efforts to quash the protest, Menzies was dubbed Pig Iron Bob. During the 10-week standoff, BHP laid off 4000 men, arguing commerce had ground to a halt. The goods were eventually loaded under protest. But resource exports later boomeranged on Canberra when the Japanese military attacked Australia.
Not an ideal parallel with Australia’s current role as China’s gas pump, of course, but Trump Nation could toss many a policy boomerang.
Trump’s unilateralism paired with China’s growing assertiveness, says Ian Bremmer of Eurasia Group, makes 2017 the “most volatile” period for political risk since World War II. It hardly helps that a weakened Angela Merkel faces an election challenge amid populist backlashes like Brexit and Trump’s shock election.
China’s leadership transition later this year raises the stakes in Asia. The question, Bremmer says, is if worsening economic conditions at home make Beijing “more likely than ever to respond forcefully to foreign policy challenges” that exacerbate China-US tensions. Odds are high that Xi might overreact to domestic troubles, fuelling new asset bubbles, imposing capital controls and engineering a currency devaluation that provokes the incoming White House.
If Beijing and Washington come to economic blows, Australia and its biggest companies — many of them miners, of course — will be caught in the crossfire.
Ten days after Trump upset Hillary Clinton, Nasser said massive tariffs on Chinese goods would cause “trauma” around the globe. Arguably the biggest leveraged bet on Chinese growth anywhere, Australia could be the first developed economy to go off the rails. Dow Jones Newswires
GXY Price at posting:
66.0¢ Sentiment: Hold Disclosure: Held
