Impact Of Economic Policy Change for Donald Trump -MyAssignmenthelp

Question: Discuss about theImpact Of Economic Policy Change for Donald Trump. Answer: The aim of the essay is to analyse the possible positive or negative impact of Donald Trump election as US president on the energy sector of Australian economy. Australia is integrated with US economy through Transpacific Trade. Donald Trump opposes the globalisation policy to revive US economy. The effect of global financial crisis and sub mortgage crisis in the US economy has not been eliminated fully. Therefore, the thought of trump is that reduction of alliance with global economies and vision in inward oriented growth of US economy (dfat.gov.au 2017). Hence, restriction in trade with global economies may hamper trade relation with Australia and economic growth of Australia. Australia is net exporter of energy and main resource of the energy sector is coal and natural gas. As demand for coal export is reducing due to climate change and shift of demand is towards renewable energy, Australian energy sector is developing potential towards this energy. During 2015, amount of total export in US was $10.2 billion, which is 5.4% of total export (industry.gov.au 2015). Figure 1: Australian export share (Source: minerals.org.au 2013) Australia is a great sources wind and solar energy. Therefore, there is ample opportunity for Australia to increase energy trade with US due to increasing demand. Although US is rich in energy resources and improved in technology and has absolute advantage in energy production, both Australia and US can gain from trade. According to the Ricardian trade theory, trade can take place between two country even one country has no absolute advantage over production of any of the traded goods. Trade is taken place based on comparative advantage. Opportunity cost of producing energy product in Australia may be less than production of another goods or services. Both countries can gain from trade if both producing and exporting the goods having comparative advantage of production. Feenstra (2015) argued that gains from trade can be dissimilar due to differences in terms of trade and relative elasticity of export and import demand. Gains from trade are accrued to the country having low elasticity of export demand in foreign market and high elasticity of import demand in domestic market. Trade revenue improves with increase in export and reduction in import. Modern trade theory of Heckscher-Ohlin argued that trade takes place in the presence of incomplete specialisation and differences in factor endowment (Johnson 2013). This model supports intra industry trade. However, according to new trade theory of Paul Krugman, modern economies engage in international trade to take advantage of increasing return or economies of scale from trade and not observing the differences in the factor endowment across regions (Helpman and Razin 2014). If modern trade theory is considered, then also energy trade between US and Australia is gainful. International trade relationship between US and Australia is increasing in the era of globalisation. In this circumstance, restrictive trade policy can hamper economic cooperation between two countries. Trump is against the Trans- Altantic Trade and Investment Partnership and Trans- Pacific Partnership, where multiple countries are engaged in trade agreement including US and Australia (dfat.gov.au 2017). If anti globalization policy is implemented in US, export of energy to the US economy may be cut or stopped, which can reduce trade revenue and capital inflows in Australia. Domestic economy of Australia may be affected for this policy of Trump. As GDP can be presented through the equation, GDP = C+I+G+(X-M), where all the components of GDP such as consumption, investment, government expenditure and net export are expenditure side of the GDP. If energy trade is reduced due to decreasing demand, revenue of this industry would be reduced. As a result energy sector may shrink as coal and natural gas are main component of energy trade. As net export (X-M) reduces, income of people working in this sector may reduce with reduction in employment opportunity. Per capita income associated with the energy sector may reduce to negatively affect the consumption demand. As a spill over effect, demand for different consumer goods in the domestic industry may decrease (Balistreri and Tarr 2016). However, as argued by Findlay and Lundahl (2017), the effect of anti globalization policy may not affect the energy industry of Australia significantly, as Australia is linked with other regional economies with greater share in trade. In the view of Feenstra (2015), over reliance on US economy is a major cause of global economic or financial crisis. Economic cooperation other developed and developing economies may reduce trade risk and risk of policy uncertainty in the US economy. Demand for coal is likely to reduce in many countries due to increasing demand for renewable resources. Australia may focus to the growth of energy sector to penetrate into the new market for export instead of US. This can reduce the negative effect of US protectionism policy on Australian economy. It can be concluded from overall analysis is that energy sector of Australia is likely to be affected by the Trump decision of anti protectionism policy. Black coal consists largest share in the total energy export from Australia, where US has 5.4 % share of total trade with Australia. Anti globalization policy and opposing the idea of Trans- Altantic Trade and Investment Partnership and Trans- Pacific Trade may reduce the trade volume of Australia. As studied in previous section, open trade is beneficial for both countries in the presence of comparative advantage. However, protectionism restricts the gains from trade and also restricts the economy to gain increasing return. Decision of Trump is to restrict capital outflow from US economy. Therefore, reduction in trade revenue and capital inflows is likely to occur in the Australian economy after Trump selection. References Balistreri, E.J. and Tarr, D., 2016. Comparison of Welfare Results from Trade Liberalization in the Armington, Krugman and Melitz Models: Impacts with features of real economies. dfat.gov.au 2017. Trans-Pacific Partnership Agreement. Available at: https://dfat.gov.au/trade/agreements/tpp/pages/trans-pacific-partnership-agreement-tpp.aspx [accessed on 05.25.2017] Feenstra, R.C., 2015.Advanced international trade: theory and evidence. Princeton university press. Findlay, R. and Lundahl, M., 2017. Modeling Global Interdependence: Centers, Peripheries and Frontiers. InThe Economics of the Frontier(pp. 95-104). Palgrave Macmillan UK. Helpman, E. and Razin, A., 2014.A theory of international trade under uncertainty. Academic Press. industry.gov.au, 2015. Energy in Australia. Available at: https://industry.gov.au/Office-of-the-Chief-Economist/Publications/Documents/energy-in-aust/Energy-in-Australia-2015.pdf [accessed on 05.25.2017] Johnson, H.G., 2013.International Trade and Economic Growth (Collected Works of Harry Johnson): Studies in Pure Theory. Routledge. minerals.org.au 2013. Exports. Available at: https://www.minerals.org.au/resources/coal/exports [ accessed on 05.25.2017]