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Navigating Australia's Economic Landscape: Implications of Free Trade and Protectionism Policies

Thursday 15th of February 2024
Navigating Australia's Economic Landscape: Implications of Free Trade and Protectionism Policies
Economics

Syllabus Topic

HSC Topic Two - Australia's Place in the Global Economy

 

Free trade and protection

  • the implications of Australia's policies for individuals, firms and governments


Environmental Management Quiz

Australia's economic policies have far-reaching effects, influencing global trade dynamics. Examining its commitment to free trade or protectionism provides valuable insights into the nation's priorities and challenges, as well as reveal the implications for individuals, firms, and governments.

 

Implications of Free Trade Policies

Benefits of Free Trade

Australia’s free trade agreements (FTAs) maintain a range of benefits. Firstly, FTAs open doors for individuals to access a wide array of goods at competitive prices, contributing to a higher standard of living. Individuals also benefit from a wider range of new technologies brought by new innovative practices, as well as better protection for intellectual property. Furthermore, export-oriented industries thrive under free trade policies, leading to job creation for individuals but also an increase in foreign investment for firms.

Firms also benefit from the expansion of their markets, as FTAs break down trade barriers ensuring that Australian businesses can tap into new markets and diversify their customer base. For example, the China–Australia Free Trade Agreement (ChAFTA) removed up to 14% tariffs on Australian animal skin goods. Additionally, China accounts for 75% of Australian animal skin exports, exemplifying the potential for further growth of Australia's market share in China. Furthermore, the increased international competition encourages firms to innovate, fostering a culture of efficiency and competitiveness.

Governments also benefit from FTAs as they stimulate economic growth, translating into higher tax revenues for the government to invest in public services and infrastructure. Furthermore, Trade relationships established through free trade agreements strengthen diplomatic ties, promoting collaboration and mutual understanding.

 

Challenges and Concerns with Free Trade

Despite the benefits, free trade can contribute to economic inequality and job displacement, particularly in industries unable to compete on a global scale. Free trade agreements can also cause negative implications for individuals, businesses, and governments when a country becomes dependant on the global market. Firstly, due to the interconnected nature of global trade, those reliant on the global market are exposed to economic and price fluctuations. Furthermore, governments may become reliant on the global market for key goods, leaving them at a strategic disadvantage in times of crisis.

 

Implications of Protectionism Policies

Protectionist measures can limit consumer choices and leads to higher prices for imported products, impacting purchasing power. Furthermore, protectionist measures create job opportunities by supporting domestic industries. However, this may come at a significant cost to taxpayers. This is exemplified by the automotive industry receiving $30 billion in assistance between 1997 and 2012, which drew scrutiny for only protecting an estimated 40’000 jobs. The protection of domestic industries also leads to reduced international competitiveness, potentially stifling innovation as firms may not face the same level of competition to drive improvements, hindering the long-term growth of industries.

Striking a balance between protectionist measures and global economic integration is crucial for a nation's sustainable development. Excessive protectionism may strain diplomatic relations with trading partners, affecting collaboration and cooperation on the international stage. However, not protecting imperative but vulnerable domestic markets can place a country in a disadvantage in times of crisis.

 

Short Answers

1. Discuss the benefits of Australia's free trade agreements (FTAs) for individuals, firms, and governments.
Australia's FTAs provide numerous benefits across different sectors. Individuals benefit from access to a wider range of goods at competitive prices, facilitated by the reduction or elimination of tariffs and trade barriers. This fosters a higher standard of living as consumers can choose from products produced more efficiently or cost-effectively in global markets. Additionally, these agreements bring in new technologies and innovations that enhance productivity and safeguard intellectual property rights. For businesses, FTAs eliminate trade barriers, opening up new market opportunities and encouraging diversification and foreign investment. Governments benefit from increased economic growth, which in turn boosts tax revenues that can be reinvested in public services and enhances international competitiveness.
2. Explain how free trade boosts international competitiveness.
Free trade enhances international competitiveness by enabling firms to access global markets more easily. By eliminating trade barriers, such as tariffs and quotas, free trade agreements (FTAs) reduce costs for businesses and consumers, leading to lower prices, greater efficiency, and increased innovation. This environment encourages businesses to specialize in areas where they have a comparative advantage, enhancing overall productivity and competitiveness on a global scale. Moreover, free trade fosters a climate conducive to attracting foreign investment and promoting economic growth, thereby strengthening a nation's position in the global economy.
3. Outline how an increase in protectionist policies in the global economy could affect the demand for the Australian dollar.
An increase in protectionist policies globally could potentially impact the demand for the Australian dollar (AUD) in several ways. Protectionist measures, such as tariffs and trade barriers imposed by major trading partners, may reduce demand for Australian exports. This reduction in export demand could lead to a decrease in the value of the AUD, as fewer foreign currencies would be exchanged for AUD to purchase Australian goods and services. Additionally, heightened trade tensions and uncertainties stemming from protectionism may deter foreign investors from investing in Australia, further affecting the demand for the AUD. Overall, an environment of increased protectionism tends to create economic uncertainty and can contribute to currency depreciation, influencing the AUD's valuation in international markets.
4. Explain how protectionist policies can impact the international competitiveness of an economy.
Protectionist policies can influence international competitiveness by shielding domestic industries from foreign competition, thereby potentially reducing innovation and efficiency gains that arise from competitive pressures. While protecting jobs and industries, such measures may lead to higher prices for consumers and limit choices. Moreover, reliance on protectionism can strain international relations and hinder collaborative efforts in global trade initiatives, impacting long-term economic growth and resilience.

 

Sources

 

Department of Foreign Affairs and Trade: Free trade agreements

Department of Foreign Affairs and Trade: Range of benefits

Department of Foreign Affairs and Trade: China–Australia Free Trade Agreement

Department of Foreign Affairs and Trade: removed up to 14% tariffs on Australian animal skin goods

Massachusetts Institute of Technology: Free trade can contribute to economic inequality

Productivity Commission: The automotive industry receiving $30 billion in assistance

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