International Business Australia Case Study 2022

Running Head: INTERNATIONLAL BUSINESS
0
Trade War
Student name
7/31/2019

INTERNATIONAL BUSINESS 1
Free flow of trade across national boundaries is possible because of globalization that has made
the world a global village, making trading of goods and services into a smooth process. The
World Trade Organization is the regulator of trading between countries; however, countries have
autonomy to decide their tariff and taxes as per their relevant laws. Recently KPMG Australia
published in his 2008 report about a big issue of trade war between World’s largest economies
US and China. Along with these two countries, other country and their economies will have great
impact, turning to losses in terms of GDP, household disposable income and even employment.
One has to go through the three models explained in that report to properly devise and decide
what solution to resort. In this essay, one can understand the impact of trade wars on their
country particularly Australia, and aftereffects of publication of such report on an international
and national levels in the context of those three scenarios as discussed in that report.
The war of trading which is the outcome of shielding domestic industries to an extreme level has
initiated between two countries, which has adverse effects not only on them but on the world’s
economic state as well. KPMG Australia has explained this in his report with the help of three
scenarios. These scenarios highlights on the economic brunt of US and China alluring in trade
war, raising their tariff rates and covering retaliation against each other. Also, due to
intensification which is one of the key concept of globalization a scenario where other countries
also participate in this war seeking protection for their domestic industry by the diversion of low
priced goods by the above two countries is considered. These scenarios are:
Limited escalation, no contagion, it can be understood as, the existence of trade war between one
or more countries by means of increasing already imposed tariff on the imports from each other
countries without having effects on other country’s economies. Placing of tariff to limited

INTERNATIONAL BUSINESS 2
preannounced tradable items will have small effect on both of US and China while having little
effect on other countries.
Full escalation, no contagion, meaning increase in the imposed tariff by further 25% between
two countries and similar to above without giving shock to other countries’ economies. GDP of
China would be reduced by estimate of 1% in 2021. In Case Of US, it will be reduced by 0.4% in
coming four years (Malakellis, Emerson , & Rynne, 2018). Country like Australia has more to
loose and nothing to gain. GDP (real) loss of about 0.5% would take place equation to a$60
billion loss in present value terms. If shielding domestic industries increases economically it
would be painful for everyone.
Full escalation, full contagion, under this, what would be the effect on the economy will be
created if other remaining countries participate in the trade war and impose tariff of 15% on all
manufactured goods or all tradable goods is discussed. This scenario will intensify the effect of
trade war and can extend to world’s greatest recession.
Trade war has created a great impact on Australia’s largest exports of resources and education
sector. Tourist and students who used to visit Australia for study and tourist purpose no more
able to spend money as, buying power of China has become weak, resulting in discouraging
Chinese to visit as tourist and study in Australian University, hence slowing economy creating
unemployment and demand for ore and coal.
The strain of trade war between US and China will affect not only Australian exporters,
manufacturers and ultimate consumers but also adversely hit farmers, miners as a result affecting
the whole supply chain.