Question 1Assuming that global international trade sharply declines because of the “trade war” (in the forms of increases in tariff and other trade barriers such as import quota and export subsidies...

Question 1
The process of trade integration has slowed down during the last decades. Free trade has slowed down while the trade protectionism has been on rise. In the current trading landscape, major players in the global trading system are providing more focus on the strategic actions making most of the traditional trade theories of Ricardo and Adam Smith obsolete. According to comparative advantage theory, opening up free trade will allow everyone to gain from trade. But United State’s current trade policy is now moving in opposite direction. During Trump administration, US trade policy looks more protectionist. While Brexit and Euroscepticism are some of the issues that have raised huge concern, the benefits of open trade have been openly questioned by Trump administration. (Blinder, 2019)
Trade tension has been escalated since 2018 when US imposed several trade protection measures and receive retaliatory response by its major trading partners. Recent surge in protectionism and the escalation of trade conflict between the trading partners have vast macroeconomic implications. Reversing the trade integration is putting net economic gains in terms of global economic growth and productivity at risk. It is important to examine the macroeconomic implications of rising trade protectionism across the world and evaluates its effect on global economy. The escalation of trade protectionism has also vast implications on several other major trading partners in the advanced world that includes Australia and Japan. (Quagliett, 2019)
Trade protectionism is one of key factor driving down the trading activity. The use of tariffs is on an upward trajectory since 2018 while the other regulatory measures such as the export subsidies, regulations of FDI or restrictions of licensing are also steady on rise. Overall, the trade distortions are on surge and significantly affected the global trading activities. Trade protectionism creates more losers than winners as it is associated with potential catastrophic consequences for the global economy. KPMG, the consultancy firm, has estimated that full blown trade war would cost millions of jobs around the world and also reduce the US GDP by 6% over the period of next decade. (Bagshaw, 2018)
Australia is having a very good trading relation with both China and United States thus exposed to huge risk at their trade conflict blows. Australia tends to import and exports an array of goods and services both from United States and China. The economic growth in Australia would suffer a serious setback as both the consumers and the producers are being caught up in the mounting trade conflict between US and China. China’s retaliation with the tariff on $60bn of US goods following the $200 billion hit on Chinese imports by Trump administration has raised huge concern on Australia’s economic prospect. US tariff is one of the major factors that would act as a drag on Chinese economy. China is the major export market for Australian goods and services. Economic slowdown of China will reduce the demand for Australian exports of commodities such as iron ore and coal and also the services like education and tourism. It would significantly hurt Australian producers and their exports. Australian consumers will also be affected as they have to pay more because of loss of exports. The economic slowdown in China has a spill over impacts on Australia and its commodity prices. Overall, the downside risk to Australian is substantially high and it has to pay a good price for US-China trade war. According to the prediction of KPMG, the consultancy firm, the escalation of US- china trade war may cost Australian economy at least $36 billion or depriving the growth by 0.3% over the time line of next decade. (Farrer, 2018)
The escalation of trade tension between world’s largest economies will hot both the exporters and consumers in Australia. Trade induced economic shock has slowed down the global economic growth and global demand that in turn will hit the Australian producers that include farmers, miners and the manufacturing suppliers. Two key sectors in Australia, namely resource sector and the education sector are heavily exposed to this trade conflict. The falling Chinese currency has made Australian exports expensive and discourage China to send their students and tourists to Australia. The producers in Australian resource will experience a sharp decline in Australian exports in Chinese market. Under such scenario, job loss will be significant in Australia that would push downward pressure on real wages on average. (Bagshaw, 2018)
Overall, the global trade has weakened sharply during the recent time and the trend is expected to continue in the months ahead. Low export growth in Eurozone has significantly contributed to poor export growth in global economic perspective and this US- China trade tension has intensified this weakness. The drag on global economy from this escalation of trade dispute has estimated a fall in world GDP by 0.1-0.2% so far. (Mousina, 2019)
Word count: 799
References
Bagshaw, E., 2018. Donald Trump's trade war will cost Australia's economy at least $36 billion. [Online]
Available at: https://www.smh.com.au/politics/federal/donald-trump-s-trade-war-will-cost-australia-s-economy-at-least-36-billion-20180907-p502dr.html
[Accessed 12 May 2020].
Blinder, A. S., 2019. The Free-Trade...