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MNG72005 International Business

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MNG72005 International Business

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Course Code: MNG72005
University: Southern Cross University

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Country: Australia

Question: 

The US President, Donald Trump, has threatened to impose trade tariffs on Australian goods. Many Australian politicians and media outlets have called for retaliatory measures. Write a policy paper for the Australian prime minister on the benefits and risks of imposing retaliatory tariffs on the US, and suggest possible alternatives to a trade war.

Answer:

Introduction:
Tariffs are taxes that are set by the government for goods which are imported. This is the small percentage of the total sum of the cost of the product that includes freights and insurances, another term for tariff is customers or import fees. These fees can also be applied on exports in certain rare cases. This report is regarding the recent announcement by Donald Trump that states to impose trade tariffs on Australian goods. As per this announcement, there has been many advantages and disadvantages when the policy gets implementing therefore this report has been stated to the Australian prime minister in regards to the issue so avoid any kind of turbulence related to the matter some measures are suggested in order to prevent an issue between United States and Australia . The statement highlights the issue related to trade tariffs and the problems and benefits associated with them (Kellenberg and Levinson 2016). The study further explains the role of the supply chain of a company and how it impacts the trade tariff that is imposed by the government. The common risks and the benefits are highlighted with which the Prime minister of Australia will get an overview of the effects of trade tariff when it is brought into full motion.
Background
As per a report in 2017, US President Donald Trump imposed multiple tariff on imported good towards many countries. These include China, Germany and Australia. This remarks had many investors in concern and this grappled with the impact of making the value of US dollars stronger (Francois et al. 2015). Due to the effects of this measure, there were many chances in both the countries, the one who implement the law and the country on which it is implemented upon. The process of international trade increases the over quantity of goods which the domestic consumer can select. Through the means of increased competition, this also lowers the overall cost of the goods which would allow domestic based industries to ship their products to abroad countries. While these measures seem to be beneficial, however this method is not very beneficial to all the parties involved. Due to Trump’s anti-trade campaign, his administration brought forth billions of dollars added in new tariffs in imports. Australia has retaliated by commencing with the tariffs on imported goods from U.S. This tariff was included on materials such as steel and aluminum from the countries. Trump also announced a 25% tariff on goods that is worth more than 15 billion (Beghin, Disdier and Marette 2015). With the levying of tariff that makes it highly politicized. The probability of high competition from the source of imported good can be problematic for domestic industries. The companies that usually shift production to aboard so that the costs are cut down can indicate a higher rate of unemployment and an electorate that is not well maintained. The argument related to domestic industries shifts to cheap labor cost and unsatisfied working conditions (Cadot and Gourdon 2016). These methods are applied so that the imported goods are made cheaply and the production would increase. The use of tariffs can also be to save the new start-up industries that is used by many developing nations.
There are specific tariffs that are fixed levied on a particular unit of a good that is imported. This can mean that a country can levy a cost of 10 dollars on a pair of imported jeans but levy around 500 dollars on an imported computer (Zheng and Kammen 2014). The phase “according to the value” also known as ad valorem is used in many cases for tariff levied on good’s value in terms of a good based on a percentage. An example would be the tax levied on automobiles. For example, if the value is 15% then there is situation where a 10,000$ car would cost an amount of 11,500$ to the consumers (George 2017). This increase in the price would therefore protect the producers of the country from being undercut and at the same time this keeps the price relatively high. Due to tariffs there is a type of trade barrier known as Voluntary Export Restraints that is set by the exporting country rather than the importing one. The restriction is the percentage of the good or the percentage of the value that is applied on the goods.  
Key Problems
The effect of tariff usually increases the price of the goods that are imported. Due to this, domestic products are not to be related to the fact that their prices would decrease because of increase in competition (Grundke and Moser 2014). The consumers from the importers country are left to pay a high price for the products and services because of this. It can also be said that tariff decreases the efficiencies of an organization by making those companies disappear from competitive to open market. The increase role of tariff makes a major impact in the overall international trade of the current times. One of the main reasons for the decline in value is due to the organization that has been introduced to improve the method of free trading (Dhingra et al. 2016). The role of these organizations make the situation more difficult for the main country to create a levy tariff on top of imported goods and this reduces the likelihood of related based taxes. Due to this effort, many countries have shifted to the method of non-tariff barriers that would include quotas and export restraints. There are organizations like World Trade Organization that attempts to decrease the rate of consumption as well as the production that is made by tariffs.
However, this brings a negative effect in the overall. The distortions that are made by these organizations are the effect of domestic producers who try to create goods based on inflated prices (Dal Bianco et al. 2015). The consumers however go ahead to buy these goods due to the decrease in price. The effects of free trade can benefit many consumers also with the increase in price due to global economy, has brought uncertainty along with many rules and regulations that are imposed by the government. It method would include tariff and many other types of trade barriers that is initially done to protect the industry. This brings forth a delicate balance in between the pursuit of efficiencies and the need of the government to make low unemployment.
Risks and Benefits
Due to the statement made by Trump’s administration, there were many changes or outcries regarding the impose of the tariffs on various raw materials, especially aluminum and steel. Since the change there have been many other amendments that have been represented from the retail, automobile, manufacturing and construction based products. Many efforts have been taken from the U.S. Chamber of Commerce. There have been many groups that are based on trade that has expressed various concerns regarding the detrimental effects of tariff. There are many risks involved no matter what kind of business it is. It is because of the effects of tariff, risk managers are looking closely at the supply chain (Kim 2017). The compliance that is based within the supply chain is important enough to suggest that managers to perform a complete audit. Even the importers those who understand the valuation of customs are classified form the foods that are being taken for import or export. This is reported to customs and the liability is taken upon the company. Benefits for this would be when the companies look for ways to redesign their products or find a source directed towards key goods that are not to lined with the newly imposed tariffs. The effects made by the trade barriers shifts over time in a business. During this initial period, the business would gain profit and as a result, the government would see to that there is an increase in the revenue (Caliendo. and Parro 2015). In a long term, there are businesses that see a decline in efficiency due to the result of intensive competition. There is also reduction in profit due to the effects of emergence in subsidies. This acts as in high demand towards the public services due to the growth of revenue. This is a risk towards the supply managers as well as the financial planners and the logistics department due to the fact that after every initial time, the government would apply new tariffs on the imported products (Bhagwati 2017). Due to this, the process can rise in an instant and some of the business operations can also turn out to be noneconomic in this trade policy landscape. However, despite this fact, some direct perspectives are applied in order to repel immediate danger from the tariffs and act as retaliation from the partners in trade. There are products like steel with which the prices would fluctuate all the time and the business is well balanced towards adaptation.
Recommendation:
The recommendation for the Prime minister would be to identify the risks involved and by diversifying the portfolio (Beckman et al. 2015). There are many areas that can be invested upon, interestingly the tariffs would be best if they do not typically have as much complexity as the caps. It can also be suggested to keep money in financial and technological places, the programs that are done to assess the software technology gets a disproportional advantage from the expenditures of capital which has the business in high stock of capital. By looking at the companies, it can be agreed that they gets their profit from the value of dollar.  
Conclusion:
Therefore from the above discussion it can be concluded that the process of trade tariff is beneficial for the economic development of the company. Due to the fact a country grow because of a new industry, the whole concept of tariff would protect it from foreign competitors, which would give the company to develop their own competitive advantage. This process therefore also creates temporary jobs for the domestic workers and the tariffs would allow the company to hire locally. Even in the log term, the trade protectionism make the industry weak and without the means of competition involved, the companies that are situated within the industries lose the will to innovate and compete. This in turn would affect the domestic products and therefore decline in quantity to be more valuable than what is actually being produced from abroad. Due to U.S. protectionism, there is slow economic growth that causes more layoffs than counted. It can be said that if United States decides to close down its borders, it would cause a chain reaction and other countries would do the same as well.
Reference: 
Beckman, J., Arita, S., Mitchell, L. and Burfisher, M., 2015. Agriculture in the Transatlantic Trade and Investment Partnership: Tariffs, Tariff-Rate Quotas, and Non-Tariff Measures. Economic Research Report, (198).
Beghin, J.C., Disdier, A.C. and Marette, S., 2015. Trade restrictiveness indices in the presence of externalities: An application to non?tariff measures. Canadian Journal of Economics/Revue canadienne d’économique, 48(4), pp.1513-1536.
Bhagwati, J., 2017. Trade liberalization among LDCs, trade theory, and GATT rules. In Value, Capital and Growth (pp. 21-44). Routledge.
Cadot, O. and Gourdon, J., 2016. Non-tariff measures, preferential trade agreements, and prices: new evidence. Review of World economics, 152(2), pp.227-249.
Caliendo, L. and Parro, F., 2015. Estimates of the Trade and Welfare Effects of NAFTA. The Review of Economic Studies, 82(1), pp.1-44.
Dal Bianco, A., Boatto, V.L., Caracciolo, F. and Santeramo, F.G., 2015. Tariffs and non-tariff frictions in the world wine trade. European Review of Agricultural Economics, 43(1), pp.31-57.
Dhingra, S., Ottaviano, G.I., Sampson, T. and Reenen, J.V., 2016. The consequences of Brexit for UK trade and living standards.
Francois, J., Manchin, M., Norberg, H., Pindyuk, O. and Tomberger, P., 2015. Reducing transatlantic barriers to trade and investment: An economic assessment (No. 1503). Working Paper, Department of Economics, Johannes Kepler University of Linz.
George, H., 2017. Protection Or Free Trade: An Examination of the Tariff Question, with Especial Regard to the Interests of Labour. Routledge.
Grundke, R. and Moser, C., 2014. Hidden protectionism? evidence from non-tariff barriers to trade in the united states.
Kellenberg, D. and Levinson, A., 2016. Misreporting trade: tariff evasion, corruption, and auditing standards (No. w22593). National Bureau of Economic Research.
Kim, I.S., 2017. Political cleavages within industry: firm-level lobbying for trade liberalization. American Political Science Review, 111(1), pp.1-20.
Yu, M., 2015. Processing trade, tariff reductions and firm productivity: evidence from Chinese firms. The Economic Journal, 125(585), pp.943-988.
Zheng, C. and Kammen, D.M., 2014. An innovation-focused roadmap for a sustainable global photovoltaic industry. Energy Policy, 67, pp.159-169.

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