Donald Trump may impose quotas, tariffs on Chinese steel dumping

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US President Donald Trump is considering using quotas and tariffs to deal with steel dumping.

How does this relate to the HSC syllabus?

  • Tariffs and quotas are forms of protection.
    • Protection is the use of government policies to give domestic producers an artificial advantage over foreign competitors.
    • A tariff is a tax on imports while a quota is a quantitative restriction on the amount of goods that can be imported. Both have a similar effect of reducing the number of imports from overseas.
    • Trump is threatening tariffs of up to 20% on import steel as a part of his campaign to revive manufacturing.
  • One of the reasons cited by governments for protection is to prevent dumping.
    • Dumping is when businesses sell goods in another country at an unrealistically low price, usually lower than the price it is sold in the home country.
    • There are many claims that Chinese firms are dumping steel. If they are, then this makes it significantly harder for firms in other countries to compete. This can, in turn, lead to lower performance of firms in the US and Australia, leading to short term unemployment. This is therefore another reason for protection – to protect unemployment.
    • The flaw with this argument of preventing unemployment is that the resources of the economy where they can be used more efficiently, leading higher long term unemployment.
    • Other theories state that, while trade liberalisation is beneficial for smaller countries like Australia, it is not as beneficial for larger countries. This can explain the United States’ recent shift towards protectionism, with the withdrawal from the Trans-Pacific Partnership.

Australian dollar surges to two-year high on weak US economic data

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The Australian dollar has appreciated to a 2-year high due to the release of weak US economic data.

How does this relate to the HSC syllabus?

  • US inflation was flat over the month of June.
    • Low inflation typically reflects low economic growth. This is because strong economic growth is usually driven by increases in aggregate demand, which also causes demand pull inflation.
    • It should be noted that the Federal Reserve considers the core Personal Consumption Expenditures (PCE) price index as their main measure of inflation while the Reserve Bank of Australia looks at the core Consumer Price Index (CPI). The inflation figures which were released were CPI figures, but still offers some information about the state of the economy.
  • When economic data is released, markets react very quickly to reflect the new expectations of investors.
    • A significant amount of market movement is driven by speculators. Upon seeing the economic data below expectations, investors shift their assets away from the US economy to other assets, such as Australian assets. Because Australian assets require Australian dollars to purchase, this leads to increased demand for the Australian dollar which leads to appreciation of the Australian dollar.

Gary Liang GARY LIANG

Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of six scholarships. He has experience at a top tier investment bank and a technology startup.

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