US-China Trade War: Implications for Australia

This report analyzes the effects of a trade war between the United States and China on other nations, especially Australia and the Europe region, and the entire world. It discusses the scenarios and the potential decrease in GDP for different countries. The report was published by KPMG, a leading accounting firm.

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US-CHINA TRADE WAR: IMPLICATIONS FOR AUSTRALIA
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US-China Trade War: Implications for Australia
Executive Summary
Today’s world of business has become more globalized (Holton, 2011). Many nations
have realized the value of international trade and have encouraged and assisted their domestic
firms to enter into it. International trade involves stiff competition and only those businesses
which adopt sound micro and macroeconomic policies end up surviving. It’s the wish of many
nations that their international businesses outdo others in order to reap the larger portion of the
international trade benefits. Due to this, many nations formulate various policies to assist their
businesses to perform well in the international market. Some of the policies formulated may be
unfair as they may aim at taming trading activities for businesses from other nations. This may
lead to trade war as the targeted businesses’ nations may retaliate to counter their competitor’s
unfair actions. A trade war between nations eventually leads to a loss in both nations as no one
gains from trade war in the long run (Trebilcock, Howse & Eliason, 2013).
This report analyzes the effects of a trade war between the United States and China to
other nations especially the Europe region and Australia and to the entire world. The report was
published by KPMG which is among the largest firms in the world offering professional services
during the year 2018 in August. From the report, it is clear that the trade war between the United
States and China would just result in lose not only to Australia and the Europe region but also in
the whole world. The report comes into its conclusion by analyzing three scenarios namely the
Limited escalation, no contagion scenario, the Full escalation, no contagion scenario and the Full
escalation, full contagion scenario. From the report, the United States imposed tariffs on steel
and aluminum from various nations such as Europe Union, Canada, and Mexico, and all these
nations retaliated and imposed a similar percentage of tariffs on the United States products. The
United States imposed 25 percent tariffs on the Chinese products whilst China, on the other
hand, imposed a similar percentage of tariffs on the United States products. Further threats from
either nation continued after their meeting at Washington D.C failed to reach an agreement. The
United States also doubled tariffs on Turkish steel and aluminum from 20 percent to 50 percent.
Turkey retaliated and announced tariffs ranging from 50 percent to 150 percent on the United
States products which included rice, cars, and alcohol. All these scenarios led to a trade war with
the worst being between the United States and China. The results of the escalated trade war have

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been modeled by KPMG using the three scenarios mentioned above and the results are as
follows.
Scenario one of Limited escalation, no contagion involves the United States applying
tariffs of 25 percent on $50 billion Chinese imports and an addition of 10 percent tariffs on
$200billion Chinese imports. On the other hand, China imposes tariffs of 25 percent on $50
billion American imports and an addition of 10 percent tariffs on all American imports. The trade
war here does not spread to other countries. From the scenario, the trade war acts of the two
nations would have a small effect on their gross domestic product with China recording a
decrease of 0.61 percent in GDP and the United States recording a 0.58 percent decrease in GDP.
Australia would record a GDP decrease of 0.29 percent, the European Region 0.22 percent
decrease in GDP and the entire world 0.4 percent. All these results are recorded after 4 years.
Scenario two of the full escalation, no contagion involves both nations applying tariffs of
25 percent on all their goods traded but this does not spread to other nations. From this scenario,
China would record an increased GDP loss by 1 percent while the United States records an
increased GDP loss by 0.9 percent. Both Australia and the European region GDPs would
decrease further by 0.5 and 0.37 percent respectively. The world GDP would decrease further by
0.6 percent. These results would be seen after four years
Scenario three of full escalation, full contagion involves the United States and China
applying tariffs of 15 percent on all their trade goods and this spreads to the entire world. From
the scenario, the world GDP would decrease by 3.8 percent, GDP for the US would decrease by
5.3 percent, GDP for China would decrease by 6 percent, GDP for Australia would decrease by
3.5 percent and GDP for the European Union would decrease by 2.0 percent. These results would
be seen after 10 years.
In a nutshell, from the three scenarios modeled by KPMG, trade war between the United
States and China would lead to loss to all nations and the entire world hence decreasing the gross
domestic product of all the nations and that of the entire.
KPMG Background Information

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KPMG is among the top three largest firms in the field of accounting in the world. It
started during the year 1897. The early founders of the company were James Marwick and Roger
Mitchell who were immigrants from Scotland. The company was initially referred to as Peat,
Marwick, and Mitchell taking the name of their respective founders. The company is
headquartered in the Netherlands at Amstelveen. The company started its operations in Australia
during the year 1895 when an accounting firm had been set up by Fredrick J. Smith (KPMG
International. (n.d.)). The accounting firm of Fredrick J. Smith joined the Peat, Marwick and
Mitchell Company which later on became KPMG Peat Marwick during the year 1990.
KPMG has been serving various companies which have the interest of establishing
themselves globally. Through its competent and skilled team, KPMG offers various services
globally which include accounting, deal advisory, risk consulting, tax and legal, audit and
assurance, management consulting and enterprise. The company has more than 820 locations in
159 countries globally.
KPMG has mission, vision, and values which highly attract various customers and also
highly encourage their competent highly skilled team to offer their best to their customers. The
mission statement of KPMG is “to turn knowledge and understanding of information, industries
and business trends into value for our firms' clients, our people and the capital markets”. The
vision statement of KPMG is “Distinguished by the learning opportunities offered, through a
platform which shares the expertise, knowledge, and experience of professionals across a global
network” (KPMG Mission, Vision & Values. (n.d.)). The various values of KPMG include
leading by example, working together, respecting individuals, seeking facts and providing
insight, being open and honest in communications, committing to communities and acting with
integrity. All these have enabled KPMG to motivate its employees to offer quality services to
customers and hence attract more customers hence improving is reputation and profitability.
KPMG Australia investigated the effect of a trade war between the United States and China on
Australia using the three nations and Europe region and later on drawing various effects on the
world economy at large.
Subsequent Developments in the US-China Disagreements

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Since the publication of the report by KPMG, the US-China trade war intensified for the
next two months. Due to political pressure and accusations from governments of both nations,
the two nations continue to fight with each with the cancellation of a meeting which was
intended to solve the war on September 22, 2018 (Firm, 2018). The US implemented tariffs on
Chinese goods worth $200 billion starting with 10 percent rate which was set to increase by
January 2019 to 25 percent. China retaliated and imposed tariffs on US goods worth $60 billion
with a rate of 10 percent. The two nations fight for both economic and technology supremacy
(Christopher Dent, 2019). Structural issues arise as the Trump administration accuses China of
forcefully acquiring their technology. During the year 2018 November, US announced export
control through the US Bureau of Industry and Security. Some of the US goods subjected to
export control were quantum computing, robotics, and artificial intelligence in an attempt to
prevent China from acquiring the American crucial technology used for military purposes. The
two nations agreed to temporarily de-escalate trade war for three months beginning January 2019
during the G20 Summit held at Argentina. The US stopped its intention of imposing tariffs on
$267 billion Chinese products. China reduced the 25 percent tariffs on the US auto imports to 15
percent China also resumed to purchasing US soy beans with estimations showing that it
purchased 1.5 million tons of soy beans (The US-China Trade War: A Timeline, 2019).
Currently, the outcomes of the February talks between the two nations are expected. We hope for
the best in that according to the KPMG three modeled scenarios, a trade war will lead to a loss
for both nations and the entire. An agreement to terminate the trade war will lead to the benefit
of all nations and the world economy will grow significantly.
Conclusion
Trade war involves retaliatory actions of nations in international trade in an attempt to
outdo each other. From the report published by KPMG Australia, investigating the effects of US-
China trade war, it is clear that the trade war will result in lose not only to Australia but also to
the whole world. This, therefore, means that no one wins from trade war and hence it is
recommended that nations meet and agree in case any problem arises between them to reach a
viable solution. US-China reduced their trade war from an agreement made at the G20 summit in
Argentina and this will highly impact the world economy through positive economic growth. In a

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nutshell, from the report, no one can win from trade war and hence it should be avoided for
nations to improve their economic growth.

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References
Christopher Dent Senior Lecturer in Economics and International Business. (2019, January 16).
Why there will be no winners from the US-China trade war. Retrieved from
https://theconversation.com/why-there-will-be-no-winners-from-the-us-china-trade-war-
109822
Firm, H. L. (2018). Doing business in China.
Holton, R. J. (2011). Globalization and the nation state. Macmillan Education UK.
KPMG International. (n.d.). Retrieved from https://home.kpmg/au/en/home.html
KPMG Mission, Vision & Values. (n.d.). Retrieved from
https://www.comparably.com/companies/kpmg-llp/mission
The US-China Trade War: A Timeline. (2019, March 13). Retrieved from https://www.china-
briefing.com/news/the-us-china-trade-war-a-timeline/
Trebilcock, M., Howse, R., & Eliason, A. (2013). The regulation of international trade.
Routledge.
Links to the articles used
https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/
https://www.comparably.com/companies/kpmg-llp/mission
https://home.kpmg/au/en/home.html
https://theconversation.com/why-there-will-be-no-winners-from-the-us-china-trade-war- 109822