Economics Report: International Trade and Economic Relationships

This economics report delves into the theories of aggregate demand and aggregate supply, exploring their significance in macroeconomic models. It examines the impact of China's economic slowdown on Australia's microeconomic conditions, highlighting the transmission of economic changes through financial and real channels. The report analyzes the economic relationship between Australia and China, focusing on trade and investment dynamics. It also discusses the effects of international trade clashes on wages, employment, and national economies, emphasizing the government's role in managing trade to mitigate negative impacts. The report concludes by summarizing key findings and the importance of healthy international trade relationships.

STUDENT DETAILS
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Contents
Introduction................................................................................................................................2
Theory of aggregate demand and supply...................................................................................3
Reason for the fall in the growth rate of the Chinese economy on microeconomic condition in
Australia.....................................................................................................................................5
Economic Relationship between Australia and China...............................................................8
International trade clashes and its effect on the wages, jobs and national economy.................9
Conclusion................................................................................................................................10
References................................................................................................................................11

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Introduction
In this assignment, discussion will be made about the theory of aggregate demand aggregate
supply. Discussion will also made about the decline in growth rate of the China’s economy
on micreconomic conditions in Australia. Currently, the GDP of the China, stands at 12.24
lakh croces USD. On the other hand, GDP of the Australian economy stands at 1.32 lakh
croces USD (Guttmann, Hickie, Rickards & Roberts, 2019). Both country engage in major
import and exports trade since ages. However, they both sometime experience the situation of
global trade war also. In this assignemt, factors affecting the economic growth will also be
concldued. It has been noted that international trade clashes affects the jobs, wages and
national income of the nation.

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Theory of aggregate demand and supply
Theory of aggregate supply (AS) and aggregate demand (AD) is the part of the
macroeconomic model that is used for the explanation of the price and output level. The
concept of AD and AS is based on the theory of John Maynard Keynes in his book of The
General Theory of Employment, Interest and Money (Awan, 2016). The theory of AD and
AD is used for describing the national income determination and recorded dynamic changes
in the price level. This model is also used for describing events that lead to creating changes
in real GDP and inflation (Awan, 2016).
(Khanacademy, 2019)
Aggregate demand from is the total of Investment, government spending, investment
and net exports (Exports-Imports). It displays the relationship between the price level and real
GNP. It cores components are the interest-rate effect, net export effect and rate of inflation
(Friedberg, 2018). Apart from this, there are various factors which affect the aggregate supply
that is the number of price frequent changes, change in inflation rate, etc. Government has the

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power to influence AS by supply-side policies such as by addressing improvements in
education and health services (Friedberg, 2018).
AD and AS from the microeconomic sense described that it is the aggregate amount
of the services & goods that an individual company or firm willing to sell at a given price
during the period. In order to determine the equilibrium point AD and AS are used together
because when AD=AS is defining equilibrium point (Kim & Gates, 2015).
Economics defines that output is the number of services or goods produced in the
period. The level of nation’s output is determined by the aggregate supply and aggregate
demand. National output is the definition as the monetary indicator for the nation. Apart from
this, there are a series of various factors that influence fluctuations in economic output which
includes an increase in growth and input in factors of production. However, labour or
capital’s appreciation or depreciation are the results of fluctuations in economic output
(Mancheri, 2015).

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Reason for the fall in the growth rate of the Chinese economy on microeconomic
condition in Australia
The strong connections/joint between the large economy like Australia and China
bring up the issue of the slowdown Chinese economy will also influence the economy of
Australia. The main scenario of the exchange rate and policies related to the monetary
matters are transmitted from the financial and real channels in both countries. Over the
previous decade, the Chinese economy has encountered development averaging very nearly 8
percent every year, supported by quick urbanization, industrialization and expanding
receptiveness to world exchange (Khanacademy, 2019). The methods of China's
improvement has also been implied in Australia's fares to China have extended rapidly over
this period which is driven by mass items. For example: iron metal and coking coal.
Given the solid connections between the two economies, the danger bloom of lull in
China has frequently act as the vulnerability for Australia's monetary viewpoint. The pace
and creation of China's development have been evolving. The sharp boost drove increment in
action that happened in the result of the 2008–09 worldwide money related emergency (GFC)
was driven by framework speculation and private development, subsidized to a great extent
by obligation, which drove a flood in Australian ware fares to China. Nonetheless, this flood
demonstrated brief. Since the mid-2010s, development has facilitated, suited by Chinese
Government arrangements intended to put the financial direction on a progressively feasible
balance (Khanacademy, 2019).
Official measurements show that China’s GDP is declined from 10% to 6.6% from
the year 2011 to 2018. During the period, the speculation portion of GDP declined from 45
percent to 43 percent, while the family unit utilization offer rose from 36 percent to 39
percent.

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Australian Government offices and private area investigators have over and again
recognized the hazard presented by a potential budgetary disturbance, and related financial
downturn, in China for the Australian economy. In this article, there will be an endeavour to
measure how such a situation could happen by and by and its suggestions. The primary
segment talks about the key exchange, speculation and monetary transactions between these
two economies that comprise a fundamental channels through which a stun could be required
to overflow from one economy to the next. The subsequent area thinks about how a huge
negative stun could conceivably happen in China and the potential structures it could take.
This segment investigations the transmission of such a stun to the Australian economy
through the perspective of a medium-sized economy model of Australia. Now, this
illuminates appraisals regarding the dangers that changes in the development of the biggest
exchanging accomplice posture to household conditions in Australia through China.

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(Guttumann, Hickie, Rickards & Roberts, 2019)
(Guttumann, Hickie, Rickards & Roberts, 2019)

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Economic Relationship between Australia and China
China's development change from urbanization and fundamental fabricated products
to residential utilization and progressively complex merchandise and enterprises, the
development sought after for Australia's assets will direct. Australia’s asset fares from their
port to China’s port are developing consistently but at the slower rate than expected (Zhu,
2016).
However, economic complementarities and people’s purchasing power are the great
economic ties head in China (Mancheri, 2015). In 2015, there were announcements made by
the federal government that Australia’s coal shipments were facing delays at the China’s port.
After the period of 14 months, the ratio of Chinese imports of Australian coals showed an
increment of 3.2%. After that, China’s aggregate import of coal has shown an incensement
percentage of 1.8%. Chinese economy is currently focusing on making investment in the
physical infrastructure for developing social infrastructure. They are also planning to move
towards consumption driven growth from export driven growth. Australia is also planning for
making more effective relations with the China.

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International trade clashes and its effect on the wages, jobs and national economy
Government interferes in making the trade healthy through their economic and
political benefit. The government also desires to stay away from trade clashes at the global
level because trade clashes always rise the state of unemployment in the country and it also
restricts the foreign direct investments. The government also have to face the huge loss from
the trade wards because it majorly impacts the import and export of the nation in an adverse
way. However, it shows adversely impacted towards the revenue of the government from the
two sides.
Firstly, the trade war affects the import and export revenue percentage. Secondly, it
also affects the job of the local people which diminishes their purchasing power that is why
the government gets fewer taxes which affects the government’s revenue. Apart from this,
international trade war among Australia and China trend to have inertia and impact both
nation’s political rivalry. However, causality among the bilateral conflict and international
trade becomes dyad dependent on the economy perspective (Khanacademy, 2019).
Government always tries to adopt the methods should which they can eliminate the scenario
that give birth to the situations like the trade war because it is not benefit for the nation’s
economy and it also affects the other nations also.

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Conclusion
It has been concluded that the aggregate demand (AD) and Aggregate Supply (AS)
both are the part of the macro-economic concepts through which they help in the study of
price level in the nation’s economy. Apart from this, economic trade clashes among Australia
and China also slow down the economy of both the countries. Import and export of both the
country got affected due to the trade war. However, it also gives birth to the unemployment in
the country. The government needs to take effective measures for arising the healthy trade
among the nations which will also succour the foreign direct investments.

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References
Awan, A. G. (2016). The wave of Anti-Globalization and Capitalism and its impact on World
Economy. Global Journal of Management and Social Sciences, 2(4), 1-21.
Friedberg, A. L. (2018). Competing with China. Survival, 60(3), 7-64.
Guttmann, R. Hickie, K. Rickards, P & Roberts, I. (2019). Spill overs to Australian from the
Chinese economy. Retrieved from:
https://www.rba.gov.au/publications/bulletin/2019/jun/spillovers-to-australia-from-the-
chinese-economy.html
Khanacademy. (2019). The aggregate demand-aggregate supply (AD-AS) model. Retrieved
from: https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/
every-graph-used-in-ap-macroeconomics/a/the-aggregate-demand-aggregate-supply-ad-
as-model
Kim, W., & Gates, S. (2015). Power transition theory and the rise of China. International Area
Studies Review, 18(3), 219-226.
Mancheri, N. A. (2015). World trade in rare earths, Chinese export restrictions, and
implications. Resources Policy, 46 (1), 262-271.
Zhu, Z. (2016). China's new diplomacy: Rationale, strategies and significance. Abingdon:
Routledge.