[HSC] Economist: 27 May — 3 June
The week in review.
Trump once again took the headlines this week, by deciding to impose tariffs on almost all metal producers around the world. Additionally, the Productivity Commission’s draft report on the effectiveness of the superannuation industry caused much debate in both political and economic circles. Later in the week, the Fair Work Commission announced a 3.5% rise in the minimum wage, which is now $719.20 per week.
1. Trump’s Tariffs
The United States Government has this week imposed tariffs on imported steel and aluminium. The tariffs — 25% on imported steel and 10% on imported aluminium — were initially threatened back in March, but not immediately implemented. However, they are now in place with Australia, Argentina and South Korea the only countries receiving exemptions.
The announcement has already sparked global condemnation, with Emmanuel Macron describing them as a “mistake” and Justin Trudeau calling them “totally unacceptable”. The EU, along with Canada and Mexico have all vowed to retaliate, with tariffs on Harley Davidsons, Jack Daniels, Levis and US agricultural exports lined up. Furthermore, the aforementioned countries are also planning to challenge the tariffs at the World Trade Organisation, given their role of settling trade disputes between member nations.
Australia is exempt from these tariffs and thus is unlikely to be impacted in the short-term. However, this week’s developments mark a serious escalation in global trade tensions, increasing the likelihood of a global trade war. If this were to eventuate it could have very detrimental implications. For example, a reduction in China’s export revenue could trigger a financial crisis, which would be quickly transmitted to the rest of the global economy. Given Australia’s close economic ties with China, there would be severe economic contraction domestically.
HSC Relevance
- Trump’s tariffs represent a further shift towards protectionism, which distorts comparative advantage, creating a misallocation of global resources. In turn, this leads to lower levels of global economic growth and development.
- Discuss how Trump’s decision to impose tariffs on imported steel and aluminium will affect the United States’ economy.
- How has globalisation enhanced the process of financial contagion?
2. Productivity Commission Report on Superannuation
The Productivity Commission released the draft of its report, Superannuation: Assessing Efficiency and Competitiveness, this week. The key findings were as follows:
- Underperformance is rife within the sector, with one in four funds underperforming.
- Industry super funds far outperform retail super funds, with average annual returns of 6.8% and 4.9% respectively.
- The difference between being in a good or bad fund is north of $600,000 in retirement.
- Almost one third of superannuation accounts were multiple accounts that had been created when individuals changed jobs.
- The cost of having multiple accounts is more than $400,000 for a new entrant to the workforce.
As its final recommendation, the Productivity Commission suggested eliminating the possibility for individuals to have multiple accounts and culling the number of firms to the top 10 best performing funds so as to reduce the negative impacts of consumers being faced with too much choice.
HSC Relevance
- Explain how the changes to the superannuation system will deliver a more equitable distribution of wealth.
3. Minimum Wage
The Fair Work Commission decided this week to raise the national minimum wage by 3.5% to $18.93 an hour, or $719.20 per week. The Commission cited improving economic conditions and forecasts, as the reason for the raise, which is the largest increase on record.
The decision was described as a “step forward” by Australian Council of Trade Unions (ACTU) secretary Sally McManus. However, Innes Willox, chief executive of the Australian Industry Group argued that the new minimum wage would be “a major disincentive to employment”.
Overall, the 3.5% raise represents a 1.6% rise in real wages given the current inflation rate of 1.9%.
HSC Relevance
- The 3.5% increase to the minimum wage should go some way to increasing Australia’s rate of wages growth, which is currently only 2.1%.
- Discuss how the increase to the minimum wage will impact economic growth, unemployment and the distribution of income.
4. Elsewhere around the Globe
- Brazil’s economic growth slipped from 2.1% at the end of 2017 to 1.2% in the first quarter of 2018. US economic growth has also fallen over that period, with the 2.2% figure from the first quarter significantly below the previous quarter’s result of 2.9% growth. Conversely, India’s economic growth rate picked up from 7.0% in the final quarter of 2017 to 7.7% in the first quarter of 2018.
- Japan’s unemployment rate remained steady at 2.5% in April. Unemployment in the Euro Area fell to 8.5% in April, the equal-lowest result since the Global Financial Crisis. Unemployment also fell in the US, with the 3.8% figure recorded in May the lowest in 18 years.
Further Reading
This series of weekly articles aims to compile the important economic news of the week into bite-sized summaries with HSC-specific takeaways.
You can expect a new article every Sunday at 6pm!
