C separately the us increased the tariffs it applied

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negotiations in Washington D.C. Separately, the US increased the tariffs it applied on aluminium and steel from Turkey in August to 20% tax and 50% tariff respectively. This resulted in an immediate financial market response, with the Turkish Lira falling dramatically, placing the country in the middle of a currency crisis. An escalating trade war This separate trade action is underscored by the fact that companies in Turkey have U$217 billion in net foreign-exchange debt, equal to about a quarter of gross domestic product. In response, Turkey announced a raft of new tariffs on US products, ranging from 50% to 140% on rice, alcohol and cars. In this paper, KPMG Australia seeks to examine what could be the economic consequences of an all-out trade war between the US and China, and how other countries should respond. A trade war that spreads to other countries KPMG Australia has modelled the economic impacts of the US and China engaging in an escalating trade war, increasing their rates and coverage of tariffs as they retaliate against each increase. KPMG Australia then considers a scenario where other countries are brought into the escalating trade war, as they seek to protect their industries from an influx of low-price goods from the US and China which are being diverted to other markets. In total, three scenarios are modelled, as set out below. Scenario 1: Limited escalation, no contagion: The US applies a 25% tariff on US$50 billion of goods imported from China and a 10% tariff on a further US$200 billion worth of goods imported from China - with China applying a 25% tariff on US$50 billion worth of goods imported from the US and a 10% tariff on all remaining goods imported from the US. Scenario 2: Full escalation, no contagion: The US applies a 25% tariff on all its imports of Chinese goods and China applies a 25% tariff on all its imports of goods from the US. Scenario 3: Full escalation, full contagion: all countries apply a 15% tariff on imports. 1 Office of the US Trade Representative, at https:// ustr.gov/sites/default/files/301/2018-0026%20China%20FRN%207-10-2018_0.pdf 2 See United States Census Bureau, at https://
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