Trump Election on the Australian Mining Industry - MyAssignmenthelp

Question: Discuss about theTrump Election on the Australian Mining Industry. Answer: In November 2016, the US voted in Donald Trump as their president-elect. This brought in many expectations the world over. The effects of Trumps election could have an impact on the mining industry in Australia bearing in mind that Australia is a major trade partner with the US. Trade between the two countries has benefited Australia tremendously because it has opened the market for Australian products. Australia is now able to sell more of its products in the US and as well get better goods from the US. International trade has been instrumental in earning foreign exchange that assists the Australian dollar to be stable in the international market. Trade between these two countries was made easy when the Australia-United States Free Trade Agreement (AUSFTA) was put in place in January 2005(Australia. Department of Foreign Affairs and Trade., 2006). This agreement offers Australia the chance to trade with the US and hence opening up bigger opportunities for Australian products to reach the worlds largest market in terms of consumption. The AUSFTA draws the attention of the US to Australia as an attractive innovative and an important global partner to the US. It is characterised by reduced tariffs, increased quotas, and easing of some of the market restrictions that were initially imposed between these two countries. Therefore, changes in the US due to the Tump presidency will also affect how industries in Australia operate. Australia has a vast wealth in mineral deposits making it one of the worlds major producers of mineral products. These products include copper, gold, aluminium, iron, zinc, coal, and mineral sands. In addition to the direct production and exportation of minerals and ore, Australia plays a major role in the development of mining services, equipment and technology. The Australian mining industry is one of the major industries in the economy contributing about 6-7% of the GDP. It generates about 54% of the total goods and services produced each year. Over 200,000 people are employed directly in the industry with another 600,000 indirectly in support industries. Being one of the major players in the economy, changes in the US will directly or indirectly influence the way the industry will operate. Before ascending to the presidency, Donald Trump was an investor and entrepreneur who always advocates for low-interest rates. During the time that he has become president, he has doubled down on his low-interest rate policy arguing that higher interest rates are a disaster to the economy. In an interview with the Wall Street Journal, he favoured low-interest rates in a bid to keep the US dollar down (Gerard Baker, 2017). Interest rates are a monetary policy tool. They are usually set by the central bank of an economy so as to control the levels of unemployment and inflation. Changes in the monetary policy will affect both the prices and income aspects of the economy. These form the income and substitution effects(Abel, et al., 2015). Trumps administration advocates for an expansionary monetary policy, which involves increasing liquidity in the US economy by lowering the real interest rates. As the real interest rates are reduced, domestic financial and capital assets will earn lower returns hence investors will shy away from putting their money in them. Domestic investors in the US will shift to invest in other foreign countries. This is where the Australian mining industry could benefit from foreign direct investments. Companies such as Whitehaven Coal and Rio Tinto that are listed in the stock market will end up getting investors from the US. Furthermore, reduction in domestic investment in the US by both the citizens and foreigners will reduce the demand for the US dollar and increase the demand for the Australian dollar. This will ease the exchange rate between the two currencies and improve the balance of payment. Australian mineral exports to the US will become relatively more expensive compared to the other commodities imported from the US. This has the net effect of improving Australias balance of trade in relation to the US. Trump administrations stance on an easy expansionary monetary policy means that will be more economic activity in the US economy due to increased liquidity. Low-interest rates associated with an expansionary monetary policy tends to increase GDP of the US economy that will, in turn, increase the demand for imports into the US. Bilateral trade between the US and Australia will make it easy to export mineral products such as iron and aluminium ores that have demand in the US. The increase in export of mineral products to the US will necessitate the exchange of US dollars to Australian dollars used in the purchase of Australian exports. This implies that there will be an increased demand for the Australian dollar and the exchange rate for the US dollar will reduce. In summary, Trump's election as the US president may work for to better the Australian mining industry and the economy of Australia in general. This will remain so if the administration and the Federal Reserve Bank of America keep favouring the expansionary monetary policy that President Trump advocates for. References ABEL, A. B., BERNANKE, B., CROUSHORE, D. D. (2017).Macroeconomics. AUSTRALIA. (2006).AUSFTA in action: the Australia-United States Free Trade Agreement (AUSFTA) : fast facts. Canberra, Dept of Foreign Affairs and Trade. DORNBUSCH, R., FISCHER, S., STARTZ, R. (2014).Macroeconomics. New York, McGraw-Hill Higher Education. Gerard Baker, C. (2017).Trump Says Dollar Getting Too Strong, Wont Label China a Currency Manipulator. [online] WSJ. Available at: https://www.wsj.com/articles/trump-says-dollar-getting-too-strong-wont-label-china-currency-manipulator-1492024312 [Accessed 23 May 2017]. Hankin, A. (2017).President Trump's Many Stances on Monetary Policy. [online] Investopedia. Available at: https://www.investopedia.com/news/president-trumps-many-stances-monetary-policy/ [Accessed 23 May 2017]. HESTER, D. D. (2008).The evolution of monetary policy and banking in the US. Berlin, Springer.