Corporate Strategy and Responsibility

This report discusses the impact of the trade war between US and China on the jewellery industry in Australia and the business of Hammon and Formont jewellery retail shop. It covers the major drivers of the trade war, reasons for its emergence, and implications on the market of raw gold and export of jewellery. The report also highlights the biasness in trade relations and the setback faced by the export market of Australian jewellery.

Running head: CORPORATE STRATEGY AND RESPONSIBILITY
CORPORATE STRATEGY AND RESPONSIBILITY
Student’s Name
University Name
Author’s Note

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Table of Contents
1. Introduction............................................................................................................................3
2. Discussion..............................................................................................................................3
Part 1.......................................................................................................................................3
2.1 Major drivers of the shift..............................................................................................3
2.2 Reasons for the countries becoming anti-trade.............................................................5
2.3 Future Implications.......................................................................................................6
Part 2.......................................................................................................................................7
2.4 Implications on the jewellery brand..............................................................................7
2.5 Second level Implications...........................................................................................11
3. Conclusion............................................................................................................................11
Reference List..........................................................................................................................12

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1. Introduction
In the course of this report, the major drivers of the trade war between the US and
China have been discussed. Again, the reasons that have led to the emergence of the trade
war have been discussed in detail. As an inevitable outcome, the business relations all around
the globe are impacted and evidently, the countries that have major business relevance in
context to the global market, are all affected. In the second part of the report, the implications
of the trade war caused between the countries like USA and China on the market of raw gold
and export of jewellery have been discussed. Again, Australia is the largest exporter of gold
and in this context, the implications of this change on the market and business of Hammon
and Formont jewellery Retail Company have been discussed.
2. Discussion
Part 1
2.1 Major drivers of the shift
The most important reason behind the trade war that has been waged between US and
China is the huge trade deficit that exists between the two countries. The US have always
accused Chia of the unfair trade means that they have adopted to.
The recent example of imposition of tariff by Trump over the import of steel as well
as aluminium to the market of the USA is partially owing to the reason that cheap steel that
have invaded the US coming from abroad has choked the industry of iron and steel in
America.
The Trump government is well aware of the fact that a serious disadvantage can be
caused to the internal economy of the country owing to this outcome. As per George et al.

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(2016), the major reason behind this is that the ore products like aluminium as well as steel
are pivotal to the infrastructure, welfare as well as security of the country.
The major percentage of the intake by America have been sourced out of China.
However, the case of internal relations between these two countries is that of rivalry.
However, the example cited is one among aplenty. In several trade exchanges Americans are
feeling being sold out to Chinese, as opposed to the allies of USA like Europe or anywhere
else.
The Trade deficit of US with China have been $375 billion in the year 2017. As per
the data provided by Ciobanu, Cook and Ehrig (2017), the exports from US to China have
been only $130 billion. Whereas, the valuation from China to US in the same year have been
$506 billion.
The Trade Deficit
(Source: Golev and Corder 2016)

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The import worth USD $77 billion in computers as well as accessories, USD $70
billion over mobile and smartphones and lastly USD $54 billion from apparel as well as
footwear from China to America have taken place in the last 5 financial years. The caution of
the American government is that these are not essentially Chinese products. These are
products of the American brand who have been sending raw materials to China in order to
achieve high level of rebate on the production cost. The factors like low cost production
owing to the availability of skilled labours at nominal wage has enticed the companies to
adopt this practice. However, Kroon et al. (2016), discusses that once these products are
shipped back from China to the US, they are marked as export products.
2.2 Reasons for the countries becoming anti-trade
The sources and the importance of the conflict have been detailed in the previous
paragraph. However, in the recent FYs, the trade war have been fully waged between China
and the UAS in full swing. Sweeping tariff of $34 billion value was straightaway imposed on
the Chinese goods including the likes of flat screen televisions, medical devices as well as
parts of aircrafts. Nielsen et al. (2015), informs that a punishing 25% border tax will be
imposed up on the same products at the time they are imported to the US.
The basic reason for the above stated footstep is to make the products from China
more expensive to the consumers in America. The perceived notion behind this action is that
if the products of China becomes dramatically expensive all of a sudden, the customers in
America would tend to but the products from some other sources and as an obvious outcome,
the Chinese business organisations would lose massive business volume.
In reaction to this step by the Trump Government, China reacted immediately and
made an immediate imposition of 25% tariff tax on the entire $34 billion value US goods
which includes soybeans, lobsters as well as branded automobiles.

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However, the critical comments of Rugman and Verbeke (2017), are worth
mentioning here. They have pit forward that American government under Trump initiated the
policy of imposition of these tariff after the completion of the investigation on the mist
controversial trade policies of China. The trade barriers imposed by the US are actually
developed to penalise China for their activities like forcing the foreign brands to sell the
copyright of the most advanced technologies to the native companies of China in exchange of
supplying access to the customer market.
The implications from Trump Government shows that America is going to stretch the
trade war further. The recent trade regulations bill that is being proposed, flaunts the decree
of imposition of border taxes on a sumptuous USD $16 billion worth of Chinese items in a
whole of two weeks. In this context, Trump’s declaration in his press release is quite
significant. Based on the way China reacts to the imposition of the latest tariff, he would
consider imposition of tariff on another USD $500 billion worth of Chinese items that are
readily available in the American markets.
Rugman, A. and Verbeke (2017), states that the trade tariffs that both China and US
are trying to imply against each other have far reaching implications. For evidence the US is
specifically imposing tariff up on the high-tech Chinese items so as to create pressure on the
Made in China 2025 campaign of China. Golev and Corder (2016), states in support of this
vision that US is actually planning to intimidate China’s plan to emerge as the most advanced
manufacturing power house in the world.
On the contrary, China is deliberate in imposition of tariff on the agricultural items
like soybeans coming from the core parts of America where the President wants to uphold
maximum reputation of his party and does not want any economic instability or loss of jobs
before the midterm election terms in 2018 (sloanreview.mit.edu, 2018).

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2.3 Future Implications
The trade war and the concerned activities like the imposition of tariff on import of
worldwide goods have high implications worldwide. At this second, it is assumed that the US
is walking on the path of raising tariff on all sorts of imports by 10% and that too with no
retaliation. In this context, the major producers and exporters of the world would also raise
their tariff by approximately 10% points. As an outcome, the IMF head has declared that the
material amount of the global growth would depreciate by an amount of minimum 1.4% over
the upcoming 2 years.
Global GDP impact of the increase of tariff
(Source: Golev and Corder 2016)
As a direct impact, the initial duties of USD $3.2 billion took effect from the 22nd of
June. Maximum are duties valued 25% imposed on the chief export items of US like
motorcycles, whiskey, and peanut butter and so on.
Part 2
2.4 Implications on the jewellery brand

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In this part, the implications of the trade war and its outcomes on the Hammon and
Formont jewellery retail shop will be discussed. The fears and probations of rising inflations
amidst the trade war that is hampering the market of raw gold all over the world. Owing to
the moderate rise in the value of the US dollar six r889993ival currencies faced an acute
downfall as a consequence of the trade war between the two countries. The AUD fell against
US Dollar, Euro as well as the Japanese Yen. As Cheng (2018), states, the AUD is perceived
as liquid proxy for emerging market exposure owing to the string business links between
Australia and China. Hence, the depreciation of export value of Australian products in many
countries is an obvious outcome, as Kroon et al. (2016) states. The trade driven growth of the
Australian export market would also be stunted. The VIX index indicates a sharp spike from
7.8pc to 13.63. The London metal exchange also indicates a depreciation in value by -2.5pc.
The recent trade tensions that is emerging after June in the third financial year, owing to the
three new trade tariff impositions that are going to be introduced would have more serious
implications.
As an impact of the rise in the value of the Dollar, the price of gold jewellery would
go up. Again supply and demand also have a high impact on the prices of raw gold. Since,
China is waged in to trade war, the export rate of raw gold from Australia is going down. As
an impact, the gold economy in Australia is being disrupted. Since the export market is
generating poor business in the country, the price of raw gold in the internal market of
Australia is also high. As Ciobanu, Cook and Ehrig (2017), states, this is occurring in order to
compensate the loss in the international market. Again, in support to the aforesaid that the
chance of market revival by raising the price of the raw gold internally, is very low (Ft.com,
2018). In South East Asian countries, there is a tradition of considering gold as an asset.
However, in the Pacific countries like Australia, the culture is different. They do not consider
old as an asset. They prefer to keep light gold fashion jewellery and do not tend to use raw

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gold to constrict new ornaments. They prefer the tradition of buying new jewellery selling off
the old jewellery. Again, Nielsen et al. (2015), depicts that the gold market in Australia is
very mobile because unlike customers in the countries of Asia or Eastern Europe, the sales
and purchase rate of the gold jewellery is very high. This is why, it is very easy to flourish
from a start-up business of gold jewellery. This has affected the overall performance of
Hammon and Formont jewellery retail shop.
The Hammon and Formont jewellery retail shop made high impact. Located in the
Southbank suburb in the bank of the Yarra in Melbourne, this ship is basically focused on the
sales of light weight and low priced jewellery and the saes rate of the jewellery store had
been quite high since the first quarter of the 2015-16 Financial Year. Local housing
imbursements and the high level of popularity of the light wright jewellery among the locals
in the suburbs is the high reason behind the success of the jewellery store. However, in the
current scenario, they are facing high crises, the major reason being the rise in the price of
raw gold. The justifications against the rise in price of raw gold have been provided here in.
However, the major negative implications for the business of jewelleries is different. The
price of finished jewelleries in case of heavy jewelleries and branded jewellers in less. They
purchase raw gold in large volume. As an impact, the effect of price hike on their customer
market is negligible. Besides Chan (2018), argues that the purchasing power of the customer
base of big jewellery brands is much higher than that of the lower priced and light weight
jewellery stores. Again, because of the low population of Australia and the low
manufacturing cost of gold jewelleries compounded with the low price of raw gold (the
earlier scenario), the major jewellery houses used to export and open branches in the overseas
market. This has affected the overall performance of Hammon and Formont jewellery retail
shop. In this context, it should be mentioned that China is one of the most potential markets
for the major jewellery houses in Australia.

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In the 2016 financial year, the export value of finished jewellery to China from
Australia have been worth USD $89 billion. As an impact, the start-up businesses of the
jewellery sector were enticed to join the market. Again, the major share of the jewellery that
have been exported to the foreign market have been mostly of the light jewellery category.
Hence, most of the new and emerging jewellers dealing in light jewellery including Hammon
and Formont jewellery retail shop sold a major share of their productions to the franchise
partners in the foreign markets.
Now, the market situation in the international sector is quite adverse. Firstly, the
market alliance of the jewellery industry of Australia with China is a major concern now. The
trade war has already caused inflation in the international market as an outcome of which the
hike in price of raw gold have been caused. This already had far-reaching negative
implications on the jewellery market of the country. Again, the trade war have also
introduced a biasness in the trade relations around the globe. The allies of US who were
among the major markets of light jewellery of Australia are now showing a dramatically
reduced demand for the gold import from Australia. In 2015, the export stats of finished
jewellery from Australia seemed as depicted in the table below.

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China India Germany USA
0
20
40
60
80
100
120 114
80
50
15
Exporting value in USD Billion
Exporting value in Billion
Axis Title
Export Value of Gold for different countries from Australia
(Source: Bcg.com, 2018)
At present, the major countries which acted as the importer of gold from Australia
have reduced their intake volumes owing to the fact that China is in the highest position of
imports. This is why, the business value of the small organisations and enterprises like
Hammon and Formont jewellery retail have depreciated about 30 to 40% (Fastcompany.com,
2018).
Due to trade war, the jewellery sector of Australia has shifted its customers base as
the price of jewellery has to be increased to maintain the profit balance in the business. This
is the reason why the focus from the Australian buyers has shifted to the international tourists
visiting the small islands or villages of Australia. However, this price increase in the
jewellery sector, the small and remote Australian towns that are completely tourism
dependant have been suffering a lot. The towns like Christmas Island, The Cocos (Keeling)
Islands, The Ashmore and Cartier Islands, The Coral Sea Islands and Australian Antarctic
Territory are all dependant only in tourism where the residents are following the profession

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related with tourism. This has affected the overall performance of Hammon and Formont
jewellery retail shop. In these places, only international tourists visit. Beforehand, the price of
jewellery was less in compared to the price in their own countries. This price was also less in
these remote tourist spots in comparison to that in the main land of the country especially in
the big cities like Sydney and Melbourne. This is the reason why they used to buy jewellery
from these places and took those with themselves indirectly exporting from Australia. This
practice hugely contributed in the economic growth and sustainability in these regions. After
the trade war and increase of price of jewelleries, the tourists are finding jewellery price more
than their own countries hence are not taking interests to continue the practices of buying
jewellery (Moreno 2018). This has affected the overall performance of Hammon and
Formont jewellery retail shop. Therefore, these places only dependant on the contribution of
the tourists, are suffering hugely due to trade war.
2.5 Second level Implications
The second level implications of the major outcome like increment in the value of raw
gold and loss of major share of the foreign markets are multifarious. The Hammon and
Formont jewellery retail company that planned to expand in the urban sectors owing to
booming business in the initial years was compelled to stop their expansion plan. After that
the Hammon and Formont jewellery retail shop has also lost major customer market in the
internal market in the country owing to acute rise in the prices of the fashion gold jewellery
and light gold jewellery by almost 20 to 25% (Mckinsey.com 2018). At the next stage, the
company is being compelled to release stock resources and enter in to the market of cosmetic
and artificial jewellery. The asset value of the company is going to reduce by almost 50% as
an outcome of this change.
3. Conclusion

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The trade war that is waged between China and America have high end implications
on international trade. The US and China both, are trying to levy tariff on the major export
shares of the countries so that there are major negative impacts caused on the economies of
the both countries. In the second part of the report, the impact of the trade war on the major
exports of gold are shown. In this context, the major market of gold export is Australia and
the gold market is badly hit by global inflation and the detoriation in international relations.
In this context, the export as well as domestic sale of the Hammon and Formont jewellery
retail company is badly impacted. The business closedown is the inevitable impact of this
trade war.

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