Trade War: Economic Consequences, Policy Implications, and Challenges
Increasing engagement with the global economy is one of the hallmarks of Australian economic development
over the past 30 years. One of the challenges that the Australian economy faces over the next few years is
the rise in protectionism stemming from a trade war between major trading partners such as the United
States and China, which is still ongoing despite a recent trade pact (https://www.bbc.com/news/business51114425). Economists generally argue that trade wars are harmful, and there is rarely if ever winners. A
trade war between two other nations might lead to calls in Australia to adopt protectionist policies. Several
policymakers, including the RBA governor Philip Lowe, have labeled the ongoing trade war as one of the
biggest threats to the world economy, potentially leading to a prolonged economic downturn in Australia and
globally. Furthermore, the ongoing COVID-19 pandemic could potentially worsen the economic consequences
of the trade war and hamper renewed efforts to curb protectionist policies.
In your essay you should discuss the following issues:
• A brief description of the nature of what a trade war might involve.
• If and why protectionist measures, such as those associated with a trade war, are harmful to an
economy.
• How a trade war between two large economies such as the United States and China may directly or
indirectly affect Australia and lead to a prolonged economic downturn.
• How Australian macroeconomic policy settings might be influenced by a trade war.
• What is the likely impact of the COVID-19 pandemic on global trade and future protectionist policies.
Sample Solution
