Question

Imagine that the trade war between the US and China escalates, and spreads to other nations, including Australia. Discuss the potential costs and benefits for the Australian economy (200 word limit).

Answer 1

There will be more of costs than benefits that the Australian economy would have to face as a result of trade war between US and China.

If the United States, regardless of opposition, adopts any new tariff measures, China will be forced to roll out necessary retaliatory measures.

The tensions between the world's two largest economies will hit Australian exporters and consumers, with fears a trade-induced economic shock would crimp global demand, hitting farmers, miners and manufacturing suppliers.

Two of Australia's largest exports - the resources and education sectors - are particularly exposed, with a falling Chinese currency weakening its buying power, discouraging Chinese parents from sending their children to Australian universities, and a slowing economy reducing demand for iron ore and coal. Its impacts would last almost a decade, with an estimated loss of national income of nearly half-a trillion dollars over 10 years.

Job losses in Australia would also be significant under such a scenario, falling almost 60,000, and pushing real wages down by about $16 per week for the average worker.

ustralia needs to be quite cautious about the escalation in trade tensions. Significant tensions around global trade policy" represented a "material risk" to the global economic outlook in Australia. Australia's top three export markets were on the brink of entering a risky international economic clash.

Australia's economy is at risk of becoming collateral damage in the escalating US-China trade war.