Impact of Trump's Trade Policy on Australian Economy

This report analyses the impact of Trump's trade policy on the economy of Australia on a broader perspective. It highlights the impact of the policy on Australian exporters of steel and aluminum and provides recommendations for the Australian economy.

Running head: ECONOMICS FOR BUSINESS AND MANAGEMENT
Economics for business and management
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Introduction:
Australia is one of the developed nations and it is indulged with the international
trading with different economies around the world since decade. At present, one of the main
trading partner of Australia is US next to China and Japan. However, presently there has been
fall in the trading relation between the US and Australia owing to the 25% enhanced tax on
the steel and tariff on aluminium on has also been enhanced by 10% (theconversation 2018).
This has enhanced the trade protectionism within the US economy, whereas, negatively
impacted the performance of the Australian trading performance. This, report is aimed to
analyse the impact of the trump’s policy on the economy of Australia on broader perspective.
Impact of the Trump’s trade policy on economy of Australia:
It is clear that with the imposition of tariff by the US government, there will be direct
implication on the Australian exporters of the steel and aluminum. However, as per the
Reserve Bank of Australia, it can be seen that there has been least or no change for the
exporters (Badawi 2018). This highlights the fact that, there is small amount of dependency
for the Australian exporters of steel and aluminum on the US market. As highlighted by
Michael (2018), this would rather enhance the performance of the domestic producers in the
long run owing to the fact that there will be scope for the exporters to find new market for
their exportable.
Figure 1: Export of Australia to US
Source: (theonversation.com 2018)

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From the figure 1, it can be seen that Australia exports, beef, meat, aircraft parts,
pharmaceuticals and alcohol by the largest amount and this again signifies the fact that there
will be least amount of impact on the overall Australian implication (Hutchens 2018).
However, in short run, there will fall in the profit for the exporting firms and there will be
loss in employment as well causing the economic condition of the domestic market to
deteriorate.
Future of the policy implication for Australia:
As it can be seen from the present situation of the Australian exporter’s perspective,
they are getting hampered due to the policy implication by the government of US. With the
rise in the policy, market for the Australian exporters has been reduced and it can enhance in
future occasion as well (Robinson and Thierfelder 2018). As it can be seen from the figure 2,
there will be fall in supply in the steel and aluminium in the US marketing allowing the price
to rise from P1 to P2 and quantity demanded to fall from Q1 to Q2. This will provide
sufficient room to the domestic producers to enjoy higher profit and gain additional producers
surplus.
Figure 2: impact of tariff on supply and demand
Source:
As the government of US is focused to enhance the performance of the domestic
economy, it can be seen that, Trump can impose policies on the products which are they

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importing from the trading partners as of now (Baidawi 2018). As per the European trading
partners of US, government of US can impose tariff for the products ranging from the
soybeans in the Midwest to bourbon sourced from the Kentucky in future instance in order to
enhance the self-reliance.
Figure 3: Change in producer and consumer surplus
Source:
This, further escalates the situation that, if the government of US starts to impose
tariff on all the products that they are importing from the other nations, then it will reduce the
demand of the good and services from the exporters as well (Ciuriak and Xiao 2018). This, it
will enhance the surplus of the US producers by the amount of A, highlighted in figu3 and
lead to fall in the producer surplus for Australia by amount of a, highlighted in the same
figure.
Recommendation for Australian economy:
As it can be seen that there has been enhanced policy utilisation by the US officials in
order to safeguard the performance of the domestic producers, government of Australia can
push the Trump government to reduce the tariff on imports showcasing the bilateral treaties
done by the Australia and US. Depending upon the same, Australian government can use the
following strategies to deal with the US policy implication:

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Australia can utilise the Free Trade Agreement (FTA) in order to diminish the import tariff.
Australian government can use the World Trade Organisation (WTO) dispute settlement
system in order to allow the international organisation force the US government to reduce
their tariff on imports from Australia.
Next to this, Australia’s export to US in highest amount is beef and meat products
along with aircraft parts, pharmaceuticals, and alcohol. Considering the same, following
recommendation can be made for the government of Australia:
Australia can charge higher in order to subsidise the domestic exporters who send
aluminium and steel to US. Government of Australia can charge higher import tariff for the
products that the state import from US, forcing their trade partner to come down to an
agreement.
In generic terms it would be better for the Australian government to enhance their
targeted market for the steel and aluminium in order to deal with the future prospect of
shortfall in the revenue. Along with the diversification, it would be good for the government
of Australia to reduce the production of steel and aluminium under the higher amount of
international market competition between China and US. It will allow them to capture the
market once the trade war between Australia and US is over.
Conclusion:
From the above discussion it can be seen that the performance of the Australian
economy in terms of international trading has showcased low impact. As the import tariff by
the US government has been enhanced, it has allowed the Australian exporters to look in for
new markets, where it can source their products and services. Though, during short run
performance has not been impacted due to the policy implication by the US government,
however, in long run, if the Australian exporters fail to find new markets for their products,
then it will lead them to face surplus production. It will thin the profit of the firms forcing the

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whole market into vicious cycle. On the other hand, if Australian brands, successfully finds
out the market, then there will be broader scope for the same to enhance their profitability
and sustainability as well through the diversifying the targeted market.

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Reference:
Baidawi, A. (2018). How Trump’s Tariffs Would Affect Australia. [online] Nytimes.com.
Available at: https://www.nytimes.com/2018/03/07/world/australia/trump-tariffs-
australia.html [Accessed 1 Sep. 2018].
Ciuriak, D. and Xiao, J., 2018. Quantifying the Impacts of the US Section 232 Steel and
Aluminum Tariffs.
Hutchens, G. 2018. Trump trade tariffs: what they mean for Australia and what happens next.
[online] the Guardian. Available at:
https://www.theguardian.com/business/2018/mar/09/trump-trade-tariffs-what-they-mean-for-
australia-and-what-happens-next [Accessed 1 Sep. 2018].
Michael, J. 2018. Trump's trade war could wipe billions from Australia's economy. [online]
Available at: http://www.abc.net.au/news/2018-04-09/trade-war-could-wipe-billions-from-
australian-economy/9633176 [Accessed 1 Sep. 2018].
Robinson, S. and Thierfelder, K., 2018. US Withdrawal from International Trade: Analyzing
the Impact on the Global Trading System with a Global CGE Model and a Gravity Model.
theconversation.com 2018. Why Trump's tariffs will have little impact on Australia and a
trade war is unlikely. [online] Available at: https://theconversation.com/why-trumps-tariffs-
will-have-little-impact-on-australia-and-a-trade-war-is-unlikely-93053 [Accessed 1 Sep.
2018].