The US-China Trade War: Economic Implications and Australia's Position

Desklib provides past papers and solved assignments. This report analyzes the US-China trade war's global impact.

Assessment Item 1
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Executive Summary
There has been found that the US and China trade war has taken place and it would have a direct
impact on the GDP of the whole world. The report will provide that what has happened to the
date and the modeling presented by KPMG Australia will also be discussed. Such modeling has
provided that the best strategy for the rest of the world is to stop the political pressure to join the
US-China trade war, despite the likelihood there may be enhanced local pressure to provide the
protection to the local industries from any Chinese as well as the US products looking for the
market. The report will provide the implications of the US-China trade war on Australia.
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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Key findings of the report................................................................................................................5
Subsequent developments in the US-China trade disagreements....................................................7
Developments in the context of the three scenarios modeled by KPMG........................................8
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
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Introduction
This report is prepared in order to understand the insinuations of the US and China trade Dispute
on Australia. The trade dispute between China as well as the US has started. Trump has also
introduced a wide range of tariffs. These are the taxes which are being imposed on the imported
goods in order to make them less demandable as compared to domestic goods and mostly
focused on Chinese imports. Such trade war could be setting of the next crisis for the global
economy. This report will include the summary and the key findings of the report presented by
KPMG Australia on US-China trade disagreements. There will be made the discussions on the
developments in the context of the different scenarios modeled within the KPMG report.
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Key findings of the report
This report is prepared on the implications of the commercial problems between two countries
US and China. The local as well as the international economy would be affected in a negative
manner and would be damaged harshly if such current US-China employment disagreements got
enhanced into an international trade dispute. There has been found the new economic modeling
by KPMG Australia.
It has been found in this report that the inclusion by a large number of the other nations in such
trade dispute would be cutting the national income of country by approximately half a trillion
dollars over the ten years. It is equivalent to the forty percent of the total household disposable
income of last year. There will be lost approximately 60,000 employments and the real wages
would be gone slow by $16 per week for an average worker. It all was found by KPMG’s report
Trade Wars: There are no Winners, finds (Calì, 2018).
Internationally, the influence of a huge amount of other nations participating in the protectionist's
measures such as the tax rate of 15% on the imports would be highly effective. The overall
market would also be contracted by more than three percent. The report has also presented three
scenarios model which is explained below:
Limited Escalation, no contagion: There will be the constraint of such current commercial
dispute to the already announced tax rate increases.
Full escalation, no contagion: There will be an escalation of the tax rates to the twenty-five
percent between the US and China (Amiti, et. al., 2019).
Full escalation, Full contagion: There will be an all-out trade war with the participants in the
form of other countries and the raised tax rates by 15%.
It has been shown in the rarticle that winning the all-out trade war, there will be experienced a
cumulative loss in the GDP as well as the recession approximately 4.6 percent over the 5 years.
The cumulative loss of China over the last five consecutive years, in comparison to the situation
where there was with no such commercial dispute would be of approximately 5.3 percent.
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The overall findings from such KPMG are that there will be no country which will win from
such global trade war and there will be a loss to every country. Even if there is the event of full-
blown trade war then it will be in the best interest of other nations to stay out of it (Li, et. al.,
2018).
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Subsequent developments in the US-China trade disagreements
It has been identified that the US and China are trying to be at some agreement ahead of the
deadline of 2 March 2019. President Trump has also threatened to raise tariffs on approximately
$200 billion which was worth of the Chinese goods to the twenty-five percent from 10 Percent. It
has been identified that the most intractable and difficult issue involved the desire of the Trump
administration to keep the meaningful constraints on the ability of China to keep investing a
huge amount of money from the government and banks which are government-affiliated
(Swanson, 2018).
All this will happen within the manufacturing sectors competing with the industries of America.
The areas that are included are aircraft manufacturing, artificial intelligence as well as
semiconductors. Given how the trade disputes between the US and China have been an important
drag on the global market this year, the investment community unsurprisingly took such
development and growth with their open arms. Most of the multinational indices soared on the
very first day of December with some of the people even proclaiming the end of such trade
dispute between the US and China.
As the consequences, the market fell as well as erased the momentum which was received from
the landmark Trump and Xi meeting in Buenos Aires. It has been identified that there is no
requirement to be overly negative on China as the authorities are showing their willingness to
make the supportive step and making the policies whenever these are required (Lau, 2018).
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Developments in the context of the three scenarios modeled by KPMG
The development in trade disagreement can be understood by the development of subsequent
factors that have been developed on the basis of further development of future aspects of both the
countries. These can be understood by doing an in-depth analysis of three major approaches
associated with the same.
1. Limited escalation, no contagion: While trade war has been affecting the GDP and the trade
circuits of the US and China, limited escalations will be affecting the internal trading and
dealing between both the countries. This will eventually affect the overall development of
revenue and further trading between the countries. The political impact will be seen but the
absence of contagion will be keeping the issues among the countries sand KPMG can deal
with other countries peacefully. This situation will not result in any winner in the case thus
helping each other for further issues in the trade war.
2. Full escalation, no contagion: In the next scenario if the escalation is raised beyond certain
limits between the trade scenario of US and China, US will eventually have to face recession
and the GDP will drop by 4.6 percent in next 5 years. China might seek new markets with this
trade war and their economy will not fall and no recession will be seen. This will show that
even though China will have to face certain issues with the GDP but the absolute fall of GDP
is three decades far.
3. Full escalation, full contagion: This scenario will instigate global disparity between various
countries thus affecting the trading of KPMG on a global level keeping in consideration all the
legal and political policies involved. If the war spreads in the world this will impose a strong
impact on global trade and practices involved in the same. This situation might open options
for other developing countries for trade.
All this can be related to identity-based motivation theory (IBM) which depicts the motivating
factors in human for the pursuit of better policies in the development of the business. These
scenarios have shown different aspects of the decision taken by both the countries and their trade
practices affecting business practices of KPMG. The impact of these trade wars will give a
massive blow on financial and global practices. The socio-economic structure of the countries will
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change and the raise recession and labor prices around the world (Maloney, 2015). The escalation
can develop strong political views and there might be a restriction of business practices on
international levels. Taking the context of macroeconomic factors this will affect the export
business and they will fall below 2.4% by 2020. This will eventually decline equity prices and
reduced foreign investment. This will eventually affect the domestic market of both economies.
This will eventually accumulate stimulus in the beginning and will eventually stabilize in future
context (Handley & Limão, 2013).
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Conclusion
It can be concluded from the report that there has been a great impact on the economy of the
world due to such US and China trade dispute. This report has covered all the necessary aspects
and implications on Australia of such trade war. The three scenarios modeling has also been
presented in this report in order to understand the impact of such policies and increased tariffs to a
great extent.
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References
 Amiti, M., Redding, S. J., & Weinstein, D. (2019). The Impact of the 2018 Trade War on
US Prices and Welfare (No. w25672). National Bureau of Economic Research.
 Calì, M. (2018). The impact of the US-China trade war on East Asia. VoxEU. org, 16.
 Handley, K., & Limão, N. (2013). Policy uncertainty, trade, and welfare: theory and
evidence for China and the US (No. w19376). National Bureau of Economic Research.
 Lau, L. J. (2018). A Better Alternative to a Trade War. China and the World, 1(02),
1850014.
 Li, C., He, C., & Lin, C. (2018). Economic Impacts of Possible China-US Trade War.
Emerging Markets Finance and Trade, 54(7), 1557-1577.
 Maloney, B. C. (2015). The economic impact of the fashion industry. In Joint Economic
Committee, United States Congress.
 Swanson, A. (2018). US and China Expand Trade War as Beijing Matches Trumpʼs
Tariffs.
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