Write about the Economics in a Global Environment for GDP.
The resource industry of Australia consists of the three sectors: minerals, natural gas and oil industries. The mineral industry is the back bone of the Australian resource sector, and mining contributes almost 8% in the GDP of the economy (Webster 2016). The mineral industry covers exploring and mining of the minerals including coal. The mineral sector of Australia is one of the top 5 producers of some key minerals such as bauxite, alumina, lead, iron ore, zinc, uranium, diamonds, black and brown coal, silver, copper, ilmenite, zircon, tantalum etc. Australia holds the first position in exporting iron ore, black coal, lead, alumina and zinc and holds second position in exporting uranium. The maximum oil resources of Australia are located near the coast of Western Australia in Carnarvon Basin. This region holds 64% of total crude oil resources, 75% of condensate oil resources and 57% of total liquefied petroleum gas. The NWSV is the biggest oil and natural gas resource development facility of Australia accounting for over 40% of the total production. Australia has better endowment of natural gas resources than oil. These are located in bulk near the Browse and Carnarvon Basins and in Bonaparte Basin in Timor Sea. The country exports almost 16 Mt tones of natural gas per annum. It has been forecasted that, by 2030, the LNG exports would rise to 50 Mt tones a year (Aph.gov.au 2017).
In November 2, 2016, the US presidential candidate of the GOP, Donald Trump took the world by surprise and shocks by beating Hillary Clinton and winning the race for the most coveted presidency of the world. The global economy became extremely unstable immediately. So far, there has been mixed reviews of his actions as US president. The election of Trump has spread an immediate panic in the global economy, and Australia is no exception. The ASX dropped by $80 billion and there was $35 billion of daily trading loss. There can be significant impacts on the resource industry of Australia, if Trump implements some of the announced policies. Firstly, Trump claims that the concept of climate change is a ‘hoax’ and he would cancel the ‘Paris Agreement’. He pledged to make the US coal industry strong by removing regulations. This would increase competition for the Australian coal industry. Secondly, he withdrew U.S.A. from the Trans Pacific Partnership (TPP) (Menalda 2016). He also claimed that China is a ‘currency manipulator’ and he would like to impose 45 cents tariffs on the imports from China. This would impact the Australian resource industry in a massive way because Australia ships its resources to China to make end products by using cheaper labor and then exports to US and other markets of the world. The decision of Trump would make the Australian products more costly and less competitive. This is an effect of imposition of import tariff. As a result, Australian exports to US will fall. This would have a negative impact on the exchange rate of Australia; its currency would depreciate in terms of USD; inflow of government revenues would be reduced; unemployment would increase and living standard would fall (Bhagwati 2013). Hence, it is a chain effect. The effect of imposing a tariff on the imports is illustrated in the following diagram.
Figure 1: Impact of import tariff in the importing country
Trump is also expected to implement an expansionary fiscal policy to stimulate the US economy. He introduced massive tax cuts for the households and the companies. He also promised to increase the output level of the country and thus, aggregate demand would be increased too (Kagi 2016). For that, U.S.A. needs more and more resources. Thus, it needs to import natural resources. Australia could exploit that policy by exporting the resources directly to U.S.A. By that, the terms of trade would be better for Australia. The exchange rate would improve. The effect of expansionary fiscal policy on imports is illustrated in figure 2 (Penati 2014).
Figure 2: Effects of expansionary fiscal policy on imports
Trump pledged to remove the regulations on resources and energy and make the US coal industry strong. This implies more regulations would be imposed on the coal imports to U.S.A. Since, Australia is a major exporter of coals to U.S.A., hence, this policy would make the Australian resource costlier than domestic resource, and eventually would reduce Australia’s exports of resources (Webster 2016).
However, the long term effects of Trump’s presidency on the Australian resource sectors would take time to be realized properly. It is too soon to predict any outcome of the new US President’s actions on the global economy.
Aph.gov.au, 2017. The Australian Resources Sector its contribution to the nation, and a brief review of issues and impacts – Parliament of Australia. [online] Aph.gov.au. Available at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BN/1011/AustResources [Accessed 20 May 2017].
Bhagwati, J., 2013 . More on the Equivalence of Tariffs and Quotas. The American Economic Review, 58(1), pp.142-146.
Kagi, J., 2016. Trump victory could impact mining sector in short term, WA Premier warns. [online] ABC News. Available at: https://www.abc.net.au/news/2016-11-09/trump-victory-could-impact-mining-sector-in-short-term-wa/8011050 [Accessed 20 May 2017].
Menalda, T., 2016. Trump Presidency: What it means for the Australian resource industry. [online] AMMA. Available at: https://www.amma.org.au/news-media/media-center/trump-presidency-means-australian-resource-industry/ [Accessed 20 May 2017].
Penati, A., 2014. Expansionary Fiscal Policy and the Exchange Rate: A Review. Staff Papers, 30(3), pp.542-569.
Webster, L., 2016. Metal and mineral commodities expected to lift in five years. [online] ABC Rural. Available at: https://www.abc.net.au/news/rural/2016-07-27/expert-says-australias-mining-downtunr-has-hit-the-bottom/7663938 [Accessed 20 May 2017].