Question

China and US are likely to form a free trade agreement after the trade war.Explain and give five reasons on how Australia would be affected if the free trade agreement is formed between these two economic giants which Australia already have trade agreements with

Answer 1

The first reason is the trade diversion will take place and Australia will suffer in terms of its export to these two countries. Now China and USA will do more trade than that of the Australia due to their free trade agreement. The second reason will be an increase in unemployment in the country of Australia. It will affect Australia as decreased export, will cause lower GDP and firms will produce less. It will create layoff of the workers and unemployment will increase in Australia. The third reason is the decrease in imports as well either by China and USA or retaliation by the Australian government. It will increase the inefficiency in the domestic producers and price level will rise. The fourth reason will be the Australia finding new partners in different reasons of the world and new trade agreements will be signed. It will help Australian products reach out to the new markets. Hence, It can again increase the exports and imports in the long run. The fifth reason is the impact of strategic relations that come out of the strong trade relations. It will be negatively affected and Australia will not be the same ally of USA as it was before these trade problems.