Free Trade + Protectionism Flashcards
(23 cards)
Australia’s trading partners
Exports:
1)China
2) Japan
3) South Korea
4) India
5) USA
Imports:
1) china
2) USA
3) japan
4) South Korea
5) Singapore
Top trading partners
-China, Japan, South Korea, India, USA
Composition of Australia’s trade
Exports:
1)coal (energy)
2) iron (mineral)
3) gold, education, tourism, wheat
Imports
1) refines petroleum
2) cars
3) delivery trucks
4) tourism
5) communication technology
Global trade
Linkages of global trade:
-goods+ services = imports+ exports
-investment ( foreign and Aus)
-people - tourism immigrants emigrants
-global trade (all linkages) increased rapidly after wwII
-in 1991, world trade 38% of GDP, 2019 60%
Why do increases in global trade lead to economic growth
-increases choices of g+s, increases living standards
-countries can obtain higher levels of production, employment + income
-economies of scale: can produce goods which could not be economically produced to a small domestic market
-promotes beneficial political and cultural links
-improves competitiveness and efficiency of firms
-facilitates faster knowledge sharing and innovation adoption globally
Aus recent trade history
-Aus reliant on trade w china (30%) and commodities (60%)
-rapid economic growth in china benefitted Aus
Importance of trade for Australia
- 1 in 5 jobs in trade related industry
-tourism = top export
-mining boom impossible without FI
-no.1 exporter of iron ore globally
Trade intensity
-trade intensity measures an economy integration with world economy, higher the figure higher the dependence on trade
Exports + imports/ GDP
Law of comparative advantage
-countries should always specialise in producing the good in which they have a comparative advantage
-absolute advantage: country able to produce more
-comparative advantage: country with lower opportunity cost (takes into account resources)
Free trade agreements
-an international treaty between two or more countries to eliminate trade barriers e.g tariff subsidies and quotas
-bilateral: 2 countries (CHAFTA)
-regional (euro eunion)
-multi lateral multiple anywhere
-Aus has 18 FTAS, most recent is a-ukfta 2023
Sources of comparative advantage
-natural resources
Tech
Labour force
Capital + infastructure
Economies of scale
Gov support (protectionism)
Protectionism
Any gov action to give domestic producers an artificial advantage over foreign producers (tariffs, subsidies, quotas)
Aims to increase production in protected industries and decrease consumer consumption of imports
Tariffs
Taxes on imported goods e.g. Aus tariffs on foreign cars, down from 1980-2015
Subsidies
Reduce the costs for domestic producers e.g domestic car manufacturing down from 19802015
Quotas
Restriction on quantities of imports e.g import quota on wool from 2016
Winners /losers of protectionism
Winners:
Workers and business of protected industry
Gov as increased tax revenue
Losers:
Increased job losses
Decreased international trade
Decreases competitiveness
Increased prices
-all forms of prtectionism result lead to NET losses in long run
-overall economic losses always outweigh gains
-arguments for prtectionism invalid
Protectionism in Aus
Significant economic reform in 80s and 90s continuing into 2000s
Openness still lower than other OECD counties
Rise in protectionism in last decade amidst trade war, global politics and conflict
E.g major trade war between us and china
Anti dumping argument
-protectionism can prevent foreign firms from ‘dumping’ their products in domestic markets
-dumping is setting artificially low prices in order to drive out domestic firms
-it is difficult to prove i\ a firm is dumping and not simply more efficient
Infant industry argument
-protectionism can support new and emerging industries to grow big enough to compete with established foreign firms
- large foreign firms have access to economies of scale meaning lower production costs and new domestic industries cannot compare
-with protection, domestic firms will never need to innovate and become efficient therefore wont be able to compete in long run
Save domestic jobs argument
-protection can help domestic firms compete leading to increased employment in those firms
-without protection domestic firms will be out competed and shut down, leading to mass unemployment within
-whilst it leads to structural unemployment in short run it lowers unemployment overall in long run as economy becomes more efficient
National security argument
-protectionism can increase national security by ensuring ‘vital’ good and services produced domestically
-without protection some vital industries might shutdown meaning country is vulnerable n war due to reliance on foreign countries for essentials
-however every industry could claim to be vital in terms of war
Trade liberalisation
Process of removing or reducing trade barriers to international trade (e.g tariffs subsided and quotas
Arguments for trade liberalisation
-increases real gdp a and living standards (increased exports)
-increases efficiency through greater competition and resource allocation
-consumers gain from lower prices and better quality/ variety
-domestic producers gain from lower input prices
-enables greater specialisation and economies of scale
-openness to trade facilitates more foreign investment
