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Workshop 1 _Week 2: Introduction to Global Financial Markets

Refer to the article titled “Globalisation’s backlash is here, at just the wrong time”,
which appeared in the New York Times on 23rd March 2018.

https://www.nytimes.com/2018/03/23/upshot/globalization-pain-and-promise-for-rich-
nations.html

1. The article refers to the “crucial risk of the recent push to reset the terms of the global
economy –including tariffs on steel and aluminium and punitive actions against China that
president Donald Trump has introduced. “

a. What is a trade war? (100 words)

A trade war occurs when a nation imposes quotas or tariffs on foreign imports and the
opposing nation retaliates by conducting similar acts of trade protectionism. Usually a trade
war would start when the government tries to protect declining domestic industries and to
create more jobs. As a consequence, domestic economies may experience positive growth in
the short run. However, long-run consequences include inflated price of imported goods,
strained relationship between countries and eventual depressed global economy.

b. Provide some examples of the tariffs imposed by US President and some of the response
from the Chinese govt? (250 words)

On 22nd March 2018, President Donald Trump signed an executive memorandum,


announcing US would impose tariffs on $60 billion of imports from China. The aim is to
penalize China for trade practices that involve stealing intellectual property from US
companies. China retaliated by imposing tariffs on $3 billion in fruit, pork recycled
aluminium and steel pipes.

On 3rd April 2018, US announced 25% tariffs on $50 billion in Chinese imported electronics,
aerospace and machinery. China retaliated by announcing 25% tariffs on $50 billion of US
exports to China. Tariffs were imposed on 106 US imported product. Sorghum and Boeing
Airplanes were also targeted as part of the retaliation. In addition, China cancelled all US
soybean import contract.

On 6th July, US imposed 25% duties on $34 billion in Chinese imports. China immediately
retaliated with tariffs on the same value of US goods.

On 10 July 2018, US announced that a 10% tariff on $200 billion of Chinese imports, raising
prices on consumer goods such as furniture, mattresses, handbags etc. The implementation is
subject to the public hearing scheduled between 20 August and 23 August. President Donald

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Trump has also added that any retaliation from China could result in all $500 Billion of
Chinese imported goods being affected.

c. Briefly what is the impact of this action on the US economy? (150 words)
Inflation, diversification
As a result of the tariffs imposed on the imported products, local manufacturers would gain
competitive advantage over imported goods. Local goods would be deemed cheaper in
comparison to imported goods, bringing a higher revenue stream to domestic manufacturers.
More jobs are created as a result.
On the other hand, domestic manufacturers that rely on imported raw materials would be
subject to higher costs of production, resulting in lower profitability. Additional costs may
also be passed onto consumers and more jobs may be lost when companies cut cost.

In the long term, trade wars hamper economic growth. Over-protection of the domestic
economy would eventually lead to reduced innovations and efficiency. Local products
decline in quality as they lose the competitive edge over foreign goods.

d. Do you think this is a cause for concern for concern for Australia? (100-150 words)
It should be a cause for concern for Australia because of the knock-on effects. For example,
the tariffs placed on steel imports from China would result in China buying less iron ores
from Australia, affecting the mining industry.
Export-GDP, currency, interest rate goes up due to pressure
For other industries such as the agricultural industry, Australia could benefit from the tariffs
imposed by China on US agricultural products. As an alternative supplier, Australia may
benefit when Chinese companies choose to buy from Australia rather than the US.

In general, any form of trade war between major economies would be a cause of concern for
Australia and the global economy. The level of uncertainty created in the global economic
environment would cause a decline in the demand for the sort of commodities that Australia
would usually export.

2. Refer to the following quote from the article

“Starting in the 1990s, improvements in communications and shipping technology made


global outsourcing more feasible… And many once –poor countries became more integrated
into the global economy

Required: What are the benefits that technological advances have brought to the global
financial markets? (200 words)

The global financial markets have a positive impact on allocation of resources which can
create human wealth in a more rational way. Consequently, it can benefit investors,
enterprises, and economies.

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Firstly, with the support of technological advances, the global financial market provides
plenty of opportunities for both developed countries and developing countries through
making investment or debt financing across borders in a more convenient and efficient way.
For instance, if entrepreneurs in poor countries are having a hard time to raise funds for new
businesses in their countries, they might seek funds in other countries like the U.S and
Europe. This is also true for large multinationals that needed more funding that are cheaper
outside their own countries. For example, multinationals could now sell debt instruments or
shares to the global market and raise more money than they originally could if they only sell
corporate bonds and shares in their own country. This is possible due to the technological
advances that makes it easier to purchase these shares and bonds through the internet. This is
helpful for the firms to expand their business and acquisitions so that they could generate
more job opportunities for the local economic growth.

Conversely, for the investors who want to earn more in stock market, they can access a wide
range of stock market in other countries to diversify their investment portfolios. This strategy
would help investors to increase earnings and reduce risk.

Lastly, advanced technology creates more employment opportunity for highly-skilled people.
With advanced technology, the world is more connected, and the people are more informed.
Hence, it lowers the difficulty for a company to look for highly-skilled workers.

3. Do you think that the anti-globalisation drive (referred in the article) is affecting
multinationals? (you can support your answer with statistics) (200-250 words)

Multinationals are large companies that operated in more than one country. The trade wars
that is prompted by President Trump would certainly affect some multinationals to a certain
degree. For example, when Trump imposed tariffs on steel and aluminium on imports from
China, U.S. multinationals company that produces part of their productions in US that
involves steel and aluminium as inputs of production would face increased production costs.
On the other hand, multinationals in China from the steel and aluminium industries might
face lower exports revenue as they are no longer competitive in the US market due to the
imposed tariffs. Consequently, due to the tariffs imposed by Trump, a series of retaliation
from China is triggered and this would result in US multinationals receiving lower exports
revenue, especially when China, with billions of middle-class group consumers, is their main
market.

Moreover, most US multinationals like Nike, Apple and Microsoft build factories and
produces in China due to the lower production costs and cheap labour and sell their products
back in their home country with a more competitive price. However, if Trump imposes tariffs

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on these related goods from China, these US multinationals would suffer from lower
revenues. In addition, China is already becoming hostile towards foreign investors such as
US multinationals, and Trump implementing an anti-globalisation move to China would
make China treat US multinationals and investors worse. In the worst-case scenario, US
multinationals may face ownership and operating risks, and face confiscation, nationalisation
or expropriation of their assets in China. With these string of events, the multinationals’ share
prices would also suffer. To sum up, anti-globalisation moves from major economies such as
US that is directed to another major economy like China would affect multinationals
negatively and place them in a very bad situation.

4. According to the article, Susan Lund of Mckinsey Global Institute highlights the following:

“We don’t think globalisation is over, but it has taken a new form. “

Do you agree with this? (150 words)

Yes, I agree with this statement.


1990s and early 2000s are the extraordinary periods of globalisation. Starting in the 1990s,
the shipping technology and connectivity improved the global trades. Thus, many poor
countries became more integrated into global economy. Moving on to recent years, the cross-
border trade becomes steady while the global capital flows are lower than the period of GFC.
Now, globalisation has taken a completely new form. The emerging of advanced
communications technology, greater connectivity and more complex technology have caused
the economies to become more interconnected. The rise of spreading information promised a
better-informed society. It seems that the world now is not just connected with the exchange
of goods and services but also to a more personal level through social media platforms and
other new advanced communication means, giving rise to a whole new level of globalisation.
This new level of globalisation has bring about higher standards of living among the people
and also created new labour demands for high and complex technological skills. Due to the
rise of social media usage, people can connect with people from other countries all around the
world, making the world more borderless. In the business context, communications
advancements in the social media area let business meeting able to be conducted anywhere at
any time; and also doing business online brings such an ease to business operations and
management.

Referencing
Bloomberg. (2018, July 6). The trade war is on: Timeline of how we got here and what’s next.
Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2018-07-06/the-trade-
war-is-on-timeline-of-how-we-got-here-and-what-s-next

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Odland, S. & Cramer-Flood, E. (2017, November 7). A trade war with China would crush
multinationals like Apple and Walmart. CNBC. Retrieved from
https://www.cnbc.com/2017/11/07/trump-must-avoid-sparking-a-trade-war-with-china-
commentary.html

Donald Trump to impose tariffs on imports of steel and aluminium. (2018, March 2). ABC News. Retrieved
from http://www.abc.net.au/news/2018-03-02/trump-to-impose-tariffs-on-imports-of-steel-and-
aluminum/9501518.