Assignment 

BEO6600 Business Economics

T2 2018

Assignment Weight: 30%

(Maximum 3000 words)

Structure of Assignment

1. Cover Sheet (next page) properly completed.
2. Assessment Declaration (signed)
3. Report in Word format (pdf format will not be accepted)

Assignments will not be accepted or marked if it is not accompanied by a signed assessment declaration.

Due: Week 12.  All assignments must be submitted via Turnitin.

PART 1: oBIKE

Context

oBike’s business model is founded on a vision of a stationless bike-sharing system and has been operating in several countries.  It started its operation in Melbourne in June 2017 but had to terminate its business in this city in June 2018.  oBike’s GPS (Global Positioning System)-tracked bikes have a built-in Bluetooth lock and its riders (customers) generally can leave the hired bikes anywhere at the end of a journey, not necessary at a docking station or designated parking space.  Users can leave the bike in a public place for the next rider to use.  However, this concept has gone awry as these bikes were littering streets, found dumped in parks, waterways and rivers, and found up trees and on roofs in the city.  Other cities in Australia and overseas also shared the same problem.  The Environment Protection Authority (EPA), the City of Melbourne’s council and affected residents were all up in arms with the way the bikes cluttered the city, found dumped and posing a hazard to people’s safety.  In May 2018, new regulations were implemented by the EPA requiring oBike to clean up dumped or damaged bikes within stipulated times.  These regulations required oBike to remove bikes creating hazards within 2 hours; bikes cluttering streets in huge numbers, damaged or vandalised within 24 hours; and bikes found up trees or roofs in 48 hours and in waterways in 7 days.  The City of Melbourne was also given the power to fine oBike A$3,000 each time the company failed to comply.  Besides having to operate under tight regulations, oBike also faced another problem that threatens the viability of its business.  Criminals stole oBike’s bikes parked in public places and removed the GPS (Global Positioning System) tracking system and Bluetooth locking mechanism in these bikes, and try to sell the stolen bikes through social media.  On 12 June 2018, oBike ceased its operation in the Melbourne market as the regulatory compliance costs associated with addressing indiscriminate parking of bikes has become too high for the company to remain viable.

Questions

1.1 Identify and explain the intended positive externalities from oBike’s stationless bikesharing system.

1.2 Identify and explain the negative externalities generated by oBike’s stationless bikesharing system.

1.3 Using a diagram, explain and illustrate the intended impact of the new regulatory regime (the EPA’s new regulations and City of Melbourne’s power to impose fines) on the negative externalities generated by oBike’s stationless bike-sharing system.

1.4 What types of market-based policies would your group recommend to Melbourne, other cities in Australia and overseas for addressing the negative externalities generated by oBike’s stationless bike-sharing system?

PART 2: TRADE WAR BETWEEN CHINA & THE US

Context

China and the US have been top trading partners with each other and were recently involved in the ‘largest trade war in history’ (Tan, 2018).  Following are key events in the China-US trade war (Bartz, 2018; Tan, 2018):

8 March 2018

Trump announces import tariffs of 25% on steel and 10% for aluminum, but exempts Canada and Mexico and offers the possibility of excluding other allies. Australia is one of the countries hoping to be granted an exemption from the levies, although US steel imports from Australia is only 1% of the total US imports and are worth around US$200m (Wearden, 2018a).

18 March 2018

Forty-five US trade associations representing some of the largest companies in the US urge Trump not to impose tariffs on China, warning it would be “particularly harmful” to the US economy and consumers. The group includes the US Chamber of Commerce, the National Retail Federation and the Information Technology Industry Council.

1 April 2018

China retaliate against US import tariffs.  The Chinese government increases tariffs by up to 25% on 128 US products, from frozen pork and wine to certain fruits and nuts, escalating the dispute in response to US duties on imports of aluminum and steel. The tariffs were scheduled to take effect on 2 April.

3 April 2018

Trump alleges China has repeatedly engaged in unfair practices to obtain US’s intellectual property and proposed 25% tariffs on some 1,300 industrial technology, transport and medical products to try to force changes in Beijing’s intellectual property practices. In addition, China ran a $375 billion goods trade surplus with the United States in 2017 and Trump has demanded that China cut the trade gap by $100 billion (Reuters, 2018). The targeted products for tariffs represent about $50 billion of estimated 2018 imports.  

4 April 2018

China announces it will impose additional tariffs of 25% on 106 US goods including soybeans, autos, chemicals, certain types of aircraft and corn products and other agricultural goods. The products targeted by the tariffs were worth $50 billion in 2017.

5 April 2018

The World Trade Organization (WTO) says China sought consultations with the US, the first step in a WTO dispute, over the US’s announced tariffs on the $50 billion worth of Chinese imports.  The notification lodged by China to the WTO triggers a 60-day deadline for the two sides to settle the complaint or face litigation at the WTO by a neutral panel of arbitrators. Despite the notification,

Trump says he has instructed US trade officials to consider $100 billion in additional tariffs on China. 

20 May 2018

The US treasury secretary announces that the proposed tariffs were put on hold by the US pending negotiation with China (Wearden, 2018b).

15 June 2018

However, three weeks after the announcement from the US treasury on 20 May 2018, the Trump administration releases an updated list of 1,100 Chinese products that will be subject to a 25 percent tax and scheduled for implementation on 6 July 2018.  More than 90 percent of the items in this list are intermediate inputs or capital equipment, meaning they are items US firms import to assemble end products.

China responds by issuing a revised list of $50 billion in US products that will be subject to tariffs starting July 6, as well. The list disproportionately targets the US agriculture sector, particularly in places where Trump voters are located. 

18 June 2018

Trump says in a statement that the United States is compiling a list of Chinese goods that will face tariffs of 10 percent unless China agrees to the trade concessions laid out by his administration. If implemented, this would add a further $200 billion in import taxes for the country, meaning tariffs will be levied on nearly all of the $505 billion in Chinese products coming into the United States.  This retaliation is unprecedented in US history. 

6 July 2018

The U.S. starts implementing duties of 25 percent on $34 billion in Chinese goods at 12:01 a.m. on 6

July 2018, prompting a swift reaction from China, which introduces an equivalent 25 percent tariff on $34 billion in US goods.  Analysts commented that the trade dispute has become a “dark day” for global trade.

Questions

1.1 Conduct an economic analysis (using diagram where applicable) of the effects of the tariffs on final goods and intermediate inputs for:

• US consumers;
• US producers;
• US government;
• aggregate national welfare in the US;
• Chinese consumers;
• Chinese producers;
• Chinese government;
• aggregate national welfare in China;
• Australian consumers;
• Australian producers;
• Australian government;
• aggregate national welfare in Australia;
• consequences on efficiency at the global level.
  • Is a trade deficit necessarily bad for a country in free trade? Why does the US pressurised China into reducing its trade deficit?
  • Evaluate and explain why analysts describe the trade dispute as a “dark day” for global trade.

References

Bartz, D. 2018. Timeline: Key events in rapid escalation of US-China trade dispute, livemint, April 7, viewed 13 July 2018,

https://www.livemint.com/Politics/9FwQLzQzAaA1O4zWy2FWDO/Timeline-Keyevents-in-rapid-escalation-of-USChina-trade-d.html

Tan, R. 2018. The U.S.-China trade war has begun. Here’s how things got to this point, The

Washington Post, July 6, viewed 13 July 2018,

<https://www.washingtonpost.com/news/worldviews/wp/2018/07/05/a-timeline-ofhow-the-u-s-china-trade-war-led-us-to-this-code-redsituation/?noredirect=on&utm_term=.aad9e0ed81c3>

Reuters. 2018. Trump escalates China trade fight, threatening US$100 billion more in tariffs.  Reuters, April 6, viewed 13 July 2018 <http://www.asiaone.com/world/trump-escalateschina-trade-fight-threatening-us100-billion-more-tariffs>

Wearden, G. 2018a. Trump tariffs: president signs order on metal imports – as it happened, The Guardian, March 9, viewed 13 July 2018,

<https://www.theguardian.com/business/live/2018/mar/08/chinese-exports-trade-warstrump-tariffs-ecb-mario-draghi-business-live>

Wearden, G. 2018b. US and China put trade war ‘on hold’, The Guardian, May 20, viewed 13 July 2018, < https://www.theguardian.com/us-news/2018/may/20/us-and-china-puttrade-war-on-hold>

Important notes for answering questions in Part 1 and 2:

In answering all the questions in Part 1 and 2, you are required to:

• use the economic principles and models introduced in this unit in your analysis, explanation and discussion.
• use diagrams where appropriate to help illustrate and support your arguments.
• clearly label all diagrams.
• conduct research to understand the contexts of this assignment.
• cite the external sources (such as academic journals articles, books, book chapters) of your arguments as appropriate. VU deals with plagiarism according to the Academic Integrity and Preventing Plagiarism Policy.

Please note that the written presentation should address the assignment questions, showing understanding and application of the key concepts and theories in the learning program.  Be concise and to the point. Marks will not be awarded for assignment that focuses heavily on background and/or event description, without any economic analysis undertaken.

Please read the following, carefully:

• The final submission should show your understanding and application of the relevant concepts.
• Since the assignment forms a part of the final mark for the unit, no assistance will be provided by the academic staff in relation to answers to the questions. However, if you need any clarifications in regard to understanding the questions, you may contact your lecturer/tutor.
• Your answers must be typed. Graphs may be drawn by hand.
• Use Times New Roman, size 12, for the text. Number the pages, if applicable.
• Include a cover page, with:

• Unit code and title
• Name of the assignment
• Tutor’s name
• student’s name and ID number
• Due date

• Attach the completed Assessment Declaration form available in the Assessment Information section of the unit website.

• Reference List, if applicable. Please use the Harvard Referencing Style.

• Your assignment must not record a Turnitin similarity rate of more than 20%. If the similarity rate exceeded 20%, you must revise it to below 20% before the submission deadline.  Assignment exceeding 20% in similarity rate will not be marked.

Marking Reference

The following table shows the marking rubric for this assignment: