Impact of US-China Trade War on International Business: MGT530 Report

This report examines the implications of the US-China trade war, focusing on the key findings of the KPMG report and subsequent developments. The analysis covers the economic impact on various countries, particularly Australia, and assesses the effects on financial markets, debt, and equity. ...Read More

Running head: INTERNATIONAL BUSINESS
International Business
Name of the Student
Name of the University
Author Note

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Executive Summary
One third of exports from Australia reach China. This implies that any shock waves from
China in international finance will be experienced by Australia highly. Recently China’s
economy has been started as a consequence of hitting back on import tariff rate in a trade war
with USA. As a major future outcome, it can be apprehended by analysing the KPMG report that
GDP cut of about 5% will take place in USA also along with 6% of that in China is the reception
of business goes on at the same pace as it is now. Considering the impact of this trade War on
other countries, KPMG analyses their economics will be slightly better in position compared to
USA in short term, however the market meltdown that they will be facing in the context of their
trade relations with USA will be far from normal in the upcoming years. However, KPMG
makes this apprehension with the view that the recession as an impact of inflated trade relations
between USA and China will be normalised in the upcoming years. Europe will experience a
GDP card of 3.2 %in a span of coming 5 years as an impact of Global recession accounting from
the US China trade war. In order to discuss, the kind of future impact on the debit and equity
market, chief economist of KPMG, Brendan Rynne highlight set major market players in the
debt and equity market will be stalled, which Shark price in risk premium, stringent credit
conditions and sharp sell offs in the equity markets. The financial markets of Australia and China
will be worst hit. In order to save their competitive and absolute advantage over other economic
markets former all other Nations, other than USA and China will try not to get drawn in this
trade conflict.

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Table of Contents
Introduction......................................................................................................................................3
Summary of key findings of the KPMG report and media coverage..............................................3
Assessment of subsequent developments in the US-China trade disagreements............................3
Assessment of subsequent developments in the US-China trade disagreements............................4
Discuss these developments in the context of the three scenarios modelled by KPMG in its report
.........................................................................................................................................................4
Conclusion.......................................................................................................................................5
Reference List..................................................................................................................................6

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Introduction
This presentation aims to conduct a key analysis of the implications of the US-China
trade war. In the first section, the primary issues highlighted in the KPMG report highlighted s
the case study have been discussed here in detail. In the second section, the subsequent
development of the US China trade war on the finance and the debt-equity market, have been
discussed In the last section, the implication of the trade war based on the issues highlighted in
the KPMG report have been done.
Summary of key findings of the KPMG report and media coverage
KPMG strictly indicates that if constant acceleration of the trade war between USA and
China takes place, along with Economic damage in both countries the entire GDP of the world
will reduce by 3.5 % annually. The country which will be immediately impacted by the crossfire
between the two Nations engaged in trade war will be Australia. KPMG report analysis says that
the financial market has not yet been exploited critically by the implications of the trade war.
However, in the future, if the financial markets are inflated in Australia, as an outcome of US
China trade war, KPMG apprehends that GDP loss equivalent to AUD $423 billion as well as
loss of household income equivalent to AUD $522 billion will be the resultant outcome.
As a major future outcome, it can be apprehended by analysing the KPMG report that
GDP cut of about 5% will take place in USA also along with 6% of that in China is the reception
of business goes on at the same pace as it is now.
Considering the impact of this trade War on other countries, KPMG analyses their economics
will be slightly better in position compared to USA in short term, however the market meltdown
that they will be facing in the context of their trade relations with USA will be far from normal in

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the upcoming years. However, KPMG makes this apprehension with the view that the recession
as an impact of inflated trade relations between USA and China will be normalised in the
upcoming years. Europe will experience a GDP card of 3.2 %in a span of coming 5 years as an
impact of Global recession accounting from the US China trade war.
Assessment of subsequent developments in the US-China trade disagreements
Wang (2016), defines that major trade relations will Defend in future on the performance
of the debt and equity markets. Economic balance in these markets is lost and major market
players of debt and equity markets loses confidence in the rational global Trading system, trade
war between USA and China will script with the engagement of other Global entities, when the
transnational corporate market players coming to play. Katznelson and Shefter (2018), identify
that trade mercantilism will no longer provide economic advantage corporate agents or National
exporters, under similar circumstances in the future.
In order to discuss, the kind of future impact on the debit and equity market, chief
economist of KPMG, Brendan Rynne highlight set major market players in the debt and equity
market will be stalled, which Shark price in risk premium, stringent credit conditions and sharp
sell offs in the equity markets. The financial markets of Australia and China will be worst hit. In
order to save their competitive and absolute advantage over other economic markets former all
other Nations, other than USA and China will try not to get drawn in this trade conflict (Beeson
& Zeng, 2016).
In making the final assumptions regarding the consequences of USA-China trade war
KPMG report highlights that 25% tariff has already been imposed on all goods between USA
and China. All other major countries involved in trade relations in USA and China are expecting

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that the current 3 month truce between US and China will run out and the tariff imposition will
be taken off.
Assessment of subsequent developments in the US-China trade disagreements
Although, trade negotiations between US and China since possible the outcome of the
discussion regarding trade between the two countries seems debatable. Popular national trade
delegates of China have already claimed in relatable sources that Trump's demands from China
are impossible. However, Ross (2016), Informed that America only demanded China to come
into agreement and stop targeting the farmers and the Agricultural Products of USA by removing
tariff and reducing import duties on such products.
USA has been constantly persisting on China to give consent on purchase of billions of
dollars worth agricultural, energy, Industrial and service products, considering to the
enforcement mechanism of USA. Other demands of USA from China include request regarding
protection of technological and intellectual property of USA. For this purpose, China will
instantly need to stop providing subsidies as well as other kinds of support which can help in
creating and maintaining excess capacity of the industries incorporated by the made in China
2025 plan. In conclusion it can be analysed that USA needs China to abandoned their model of
economic development as well as emulate the US practice of maintaining free market conditions
for determining economic development. However, analysing these demands, Autor, Dorn &
Hanson (2016), states that it will be political life it difficult for China to swallow these demands.
In support of the previous argumentKerr, Harris, & Yaqing (2016), further defines that the
demands of USA holds that they will restore their rights as judge, jury as well as executioner,
where is China will be absolutely deprived of reaming deprived of the rights to seek recourse to

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the World Trade Organisation. It is obvious that no sovereign power in this world will be
accepting such a humiliating treaty.
USA has proposed a “trade off “if China agrees to all these proposals. However USA has
declared that they will not take away there threat of increasing tariff rate by 25% on all products
imported to USA from China starting from 2nd March 2019. This implies that China will not be
able to gain competitive advantage by exporting any of their major exporting items to America
anymore. On the contrary America will keep on receiving benefits by implementation of the
product life cycle model. Where is, the mercantilism policy of China will be e receiving a big set
back if they agree to the policies of USA.
As highlighted in KPMG report, Australia will receive a serious side back as major
exporters of the country will be caught up trade war between USA and China.
Bloomfield (2016) informs that Beijing has recently retaliated with a tariff value worth
$60 billion of US products after the Trump administration hit a $200 billion tariff on imports
from China. HoweverAutor, Dorn & Hanson (2016), argues that the negative impact that was
supposed to fall on the stock market after position of the new tariff in September of 2018, has not
following in the same proportion. In fact value of Nikkei index in Tokyo rose by 1.3% where is
the Australian stock exchange 200 experienced 0.4% rise.
In fact the Australian Dollar which is perceived to be the parameter of World Trade
comma also throws in value by 0.6%. in analysing the causes of increase in stock values and the
valuation of Australian dollar, Wang (2016), analyses that all major Australian companies had
anticipated the tariff rate to go much above 25% from America’s end. that is why the impact of
the trade war between US and China had already been priced into the share values.

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Discuss these developments in the context of the three scenarios modelled by KPMG in its
report
One third of exports from Australia reach China. This implies that any shock waves from
China in international finance will be experienced by Australia highly. Recently China’s
economy has been started as a consequence of hitting back on import tariff rate in a trade war
with USA. As an outcome of this new imposition, experts like Autor, Dorn and Hanson (2016),
analysed that Australian proportion of Exports will shortly fall by 4.4 % within December 2019.
The Chinese Technology Sector also received the big setback activities where restricted for the
first time in last two years in China. This implies that the import of Chinese technology in
Australia market will also be less 2019-20 financial year.
Australia's major exports to China are iron ore and coal, the complete valuation of which
is $120 billion Australian dollars. As a consequence of the trade were the laws of business
volume that Australia experienced due to the turbulence in market was accounting to 194.6
billion Australian dollars KPMG, 2018).
Conclusion
KPMG strictly indicates that if constant acceleration of the trade war between USA and
China takes place, along with Economic damage in both countries the entire GDP of the world
will reduce by 3.5 % annually. The country which will be immediately impacted by the crossfire
between the two Nations engaged in trade war, will be Australia. If the financial markets are
inflated in Australia, as an outcome of US China trade war, KPMG apprehends that GDP loss
equivalent to AUD $423 billion as well as loss of household income equivalent to AUD $522
billion will be the resultant outcome. major trade relations will depend in future on the

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performance of the debt and equity markets. Economic balance in these markets is lost and major
market players of debt and equity markets loses confidence in the rational global Trading system,
trade war between USA and China will script with the engagement of other Global entities, when
the transnational corporate market players coming to play.

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Reference List
Autor, D. H., Dorn, D., & Hanson, G. H. (2016). The china shock: Learning from labor-market
adjustment to large changes in trade. Annual Review of Economics, 8, 205-240.
Beeson, M., & Zeng, J. (2016). Chinese views of Australian foreign policy: Not a flattering
picture. Australian Journal of International Affairs, 70(3), 293-310.
Bloomfield, A. (2016). To balance or to bandwagon? Adjusting to China's rise during Australia's
Rudd–Gillard era. The Pacific Review, 29(2), 259-282.
Katznelson, I., & Shefter, M. (Eds.). (2018). Shaped by war and trade: International influences
on American political development (Vol. 79). Princeton University Press.
Kerr, P., Harris, S., & Yaqing, Q. (Eds.). (2016). China's" new" diplomacy: tactical or
fundamental change?. Springer.
KPMG, (2018). Over-reaction to trade war would cause huge economic shocks. KPMG.
Retreived on 30th March 2019. Retrieved from
https://home.kpmg/au/en/home/media/press-releases/2018/12/financial-market-ober-
reaction-to-trade-was-would-cause-huge-economic-shocks-14-december-2018.html
Ross, R. J. (2016). After the Cold War: Domestic Factors and US-China Relations: Domestic
Factors and US-China Relations. Routledge.
Wang, Y. (2016). Australia-China relations post 1949: Sixty years of trade and politics.
Routledge.

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