President Trump touts border tax, quits TPP

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Trump officially withdraws the US from the Trans-Pacific Partnership, as one of his first acts as the President of the United States. He has also indicated that he would like to set up a ‘substantial border tax’.

How does this relate to the HSC syllabus?

  • The Trans-Pacific Partnership (TPP) was a multilateral trade agreement in negotiation between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. The final proposal was signed on 4 February 2016 after seven years of negotiations, but now it cannot be ratified due to US withdrawal.
    • This perhaps reflects the beginning of a new era of protectionism and reversal of globalisation led by Trump’s United States (HSC Topic 1).
    • One of the arguments for moving towards protectionism is the protection of American jobs. In theory, greater protectionism ensures that the domestic (American) industries are better able to compete, and thus hire more employees locally (HSC Topic 1).
    • However, the rebuttal to this argument is that resources are allocated to where they are inefficient and thus, this lowers economic growth. In particular, employees would be able to find jobs in different industries in long term (HSC Topic 1).
  • Trump also wants to set a ‘border tax’ which would increase international prices by up to 20%.
    • This is also known as a tariff (HSC Topic 1).
    • One effect of this would be to increase prices, causing inflation for the American economy. This can lower real income and therefore lower standard of living.
    • However, a benefit of this would be the increase in government revenue which would then be able to be spent to benefit the wider population. There have been suggestions that this would be one of the funding sources for the border wall between the US and Mexico.

Consumer price index: Rates on hold as inflation bottoms

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The Reserve Bank is likely to leave rates on hold for the first meeting of the year (7 Feb) after the release of inflation results for the December quarter. Australia’s inflation rate was just 0.5 per cent in the quarter, down from 0.7 per cent in the September quarter. Both the underlying and headline rate of inflation was 1.5 per cent for the year, below the 2 to 3 per cent inflation target set out by the RBA.

How does this relate to the HSC syllabus?

  • Inflation refers to a sustained increase in price levels over time, measured by looking at percentage changes in the Consumer Price Index (CPI) (HSC Topic 3).
  • The Reserve Bank of Australia (RBA) has a 2-3 per cent inflation target. When the economy is below the inflation target, they tend to keep the cash rate on hold or lower them, as this is an indication that the economy might be in a downturn. Conversely, when the inflation is above the inflation target, then the RBA might increase the cash rate (HSC Topic 3, 4).
  • The CPI is measured by looking at the prices of a basket of goods and services which an average household would purchase. Inflation was lowered this quarter due to falls in the prices of international holiday travel and accommodation, clothing and non-alcoholic beverages. (HSC Topic 3)

Best since Gough. Deloitte Access says Australia's current account deficit set to tumble

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Deloitte Access is a predicting a positive trade balance and an improvement in the current account deficit (CAD). They are predicting a CAD of just 1.3% of GDP, which would be the smallest since Gough Whitlam was Prime Minister.

How does this relate to the HSC syllabus?

  • The current account is composed mainly of the net primary income account and the balance of goods and services. Inflows are called credits (exports and income received) and outflows are called debits (imports and income paid overseas).
    • The current account is a reflection of a country’s external stability, or ability to meet overseas financial obligations. (HSC Topic 3).
    • Australia has had a persistent current account deficit for over 40 years, reflecting its dependence on overseas investment and narrow export base. (HSC Topic 2).
    • Deloitte Access partner Chris Richardson said the prediction of a trade surplus is due to forecasted increases in the coal and iron ore prices, more exports of liquefied natural gas (LNG), and reduced imports of mining equipment.
    • Globally, Australia is facing a low interest rate environment, making it easier to service debt.
  • An improvement in the current account deficit would decrease the chances of a credit rating cut.
    • Currently, Australia’s sovereign debt rating is AAA, indicating that Australia is a safe investment.
    • However, recently, Standard & Poor’s put Australia on negative watch, in light of the nation’s poor budget position.

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