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econs > Australia's International Trade, Free Trade & Protection > Flashcards

Australia's International Trade, Free Trade & Protection Flashcards

1
Q

5 Main linkage between economies

A

Trade: movement of g/s across borders
Merchandise and trade: goods only
Investment: occurs when an investor purchases assets in a foreign country (shares, property, new business)
Toursim: movement of people temporarily to a foreign country
Immigration: movement of people permanently to a foreign country

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2
Q

Trade export contributions?

A

Exports contribute to 26% of Aus GDP and around 24% of Aus workers are directly involved in trade related activities

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3
Q

Toursim accounts for?

A

accounts for 30% of the world’s exports of the worlds exports of commercial services

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4
Q

Investment relies?

A

relies on investment to supplement its domestic savings to help fund economic development

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5
Q

Immigration has been….

A

has been an important source of skilled labour and has helped to boost Aus population growth

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6
Q

What is Trade intensity

A

measures trade (sum of exports and imports) as a percentage of GDP

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7
Q

the 5 importance of trade Australia

A
  • Australia’s economy relies on international sector for trade in g/s and funds for investment
  • Historically, Aus has received more foreign investment than it provides (mainly for mining industry)
  • Aus is an open economy - movement of g/s and investment is relatively unrestricted
  • Australia has been an exporter of primary commodities
  • and an importer of manufactured goods
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8
Q

What are Primary Commodities

A

naturally occurring and require little processing eg minerals and agricultural goods

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9
Q

What are manufactured goods

A

large amounts of labour/ capital used to process eg cars, machinery, clothing

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10
Q

3 Benefits of trade for consumers

A
  • expand consumption possibilities through access to wider variety of g/s at cheaper prices
  • this boosts standard of living
  • many aus jobs rely on trade ( eg fifo workers, farmers) and therefore creates employment opportunities
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11
Q

5 Benefits of trade for producers

A
  • increases production through exports as aus firms reach larger market (increase profits)
  • import inputs/resources to reduce production
  • transfer technology/ ideas from other countries encourages innovation
  • exposure to competition from overseas motivates firms to adapt more efficient methods
  • trade now accounts for over 46% of Aus GDP and is an important driver of growth
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12
Q

5 Patterns in Australia’s trade intensity

A
  • covid pandemic caused Australia trade intensity to fall to below 40%
  • aus trade intensity is relatively low compared to other countries
  • USA,china,japan have lower trade to GDP ratios than Australia, due to the size of their domestic economies
  • their size of their economies enables them to reap the advantages of economies of scale
  • overtime, australias trade intensity has increased with exports and imports
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13
Q

Australias composition of trade

A

Refers to the makeup of exports and imports
EXPORTS
- aus exports primary commodities
- overtime, increased importance on minerals and decline in rural/manafactures exports
- due to high demand from chinas growing economy for minerals and resources
IMPORTS
- aus mainly imports manufactured goods(consumer/captial goods)
- aus has a relatively small manufacturing industry

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14
Q

australias direction of trade

A

Refers to a country’s top trading partners.
- aus shifts away from eurpoe towards asia pacific region
- accounts for 80% of aus exports and 70% of aus imports
- countries in this region are part of the APEC(asia pacific economic corporation)

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15
Q

FTA(free trade agreements)

A

agreements between nations to reduce or elimante trade borders that inhibit the international flow of g/s and investment

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16
Q

3 types of FTA’s

A

Bilateral: between 2 nations
- advantages: easy to negotiate and implement
- disadvantages: creates complexity in the trade system as nations can have different rules within agreements
- eg, ChAFTA - China-Australia

Multilateral: between more than 2 nations (eg. AANZFTA - ASEAN-Australia-New Zealand)

Regional: between countries within the same geographical region (eg. EU)

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17
Q

What is trade creation

A

occurs when the agreement creates trade which otherwise would not have existed.
- happens when countries specialise in producing only goods they are efficient in and import the goods they are inefficient in
- production shifts from high cost producer to low cost producer

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18
Q

what is trade diversion

A

occurs when production shifts from low cost producer outside the FTA, to a high cost producer within the FTA

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19
Q

3 Trade Barriers

A

Tarrifs: tax on imports
Subsidies: govt payment to domestic firms
Quotas: limit or restriction on the no. of imports

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20
Q

What are Benefits of trade

A

Specialisation

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21
Q

Trade Bloc?

A

RTa’s can act as a trade bloc
- a group of countries that agree to reduce barriers to trade between themselves but impose barriers on countries outside the ‘bloc’
- RTA’s may cause trade diversion rather than trade creation

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22
Q

Specialisation?

A

Trade involved nations specialising in the production of g/s
- when a country produces the g/s to which they ar best suited
- occurs due to differences in the quantity/quality of resources available

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23
Q

What does specialisation result to

A
  • results in diff prod costs- countries benefit from prod the good in which they are relatively more efficient
  • surplus prod is then exported and country can import the goods in which they are less efficient
  • increases economic wellbeing as resources are allocated at their optimal level(efficient)
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24
Q

Closed economy? (GRAPH)

A
  • no trade
  • only supplies in this market are domestic sellers who sell at a price of life
  • TS is maximised in this market at equilibrium
  • to prove that countries benefit from trade, need to show TS is greater with the trade than without trade
25
Q

Open market? (GRAPH) (exports)

A
  • allows trade
  • includes both domestic sellers(SD) and foreign sellers (SF)
  • SF represents FS curve and determine world price (PW for the good above domestic price (PD)
  • PD is lower than PW, meaning domestic earning is relatively more efficient at prod the good, country will export goods
  • PD can sell at PW
  • At pw, domestic supply will increase from QE TO Q2.
  • Dometic demand will decrease from QE TO Q1
26
Q

5 Gains of open market exports

A

-Created surplus Q2,Q1 which is exported
- Cs decreases as consumers pay a higher rice (pd to pw) and are consuming less (qe to q1)
- ps increases as producers are selling more (qe to q2) at a higher price (pe to pw)
- prods gain more than consumers lose , ts increases overall
- Market efficiency increases due to trade

27
Q

Imports (open market) GRAPH

A
  • SF sits below the PD, meaning that domestic firms are relatively inefficient at prod the good
  • economy will benefit from importing the good at a price of pw
  • at pw, domestic consumption increases from qe to q2, and domestic production decreases from qe to q1
28
Q

5 Gain from open makret imports

A

creates shortage - economy imports q2,q1 to supplement this
- CS increases as consumers pay a lower price (pd to pw) and are consuming more (qe to w2)
- ps decreases as prods sell less (qe to q2) at a lower price (pd to pw)
- ts increases overall as consumers gain more than prods lose
- efficiency increases

29
Q

Absolute advantage?

A
  • theory of aa can be used to demonstrate the gains from trade
  • when one country can produce more units of a good than another country with the same amount of same resources
30
Q

Graphing AA 6 steps

A

1) Ppf for both nation
2) determine aa, which country
3) before trade: assume each country dedicates 50% of its resources to production of each good
4) Specialisation
5) After trade: each country better than BT
6) Gains from trade

31
Q

Comparative advantage?

A

when one country has AA in prod both goods, countries can still benefit through the theory of aa
- when a country can produce a good at a lower opportunity cost than another country
- ca lies where OC is the lowest

32
Q

Graphing CA 10 steps

A

1) PPF
2) Determine AA
3) Opp cost, eg to find 1 coal = sugar/coal
4) Determine CA, which one has lower oc for each good
5) Before trade, assume 50% of resources are allocated to each good
6) Specialisation
- there is a problem here, total prod of one good may have decreased
- country with aa in both good will partially specialise portion of resources
7) Partial specialisation, assume (country with aa) dedicated (random %) of its reources to this good and blah blah
8)After trade, each country must be better off than before, use totals from partial specialisation
9) Gains from trade
10) Terms of trade: use partial spec figures and AT

33
Q

Trade protection?

A

Actions by the govt to provide domestic procedures with an artificial advantage over foreign producer

34
Q

3 types of trade protection?

A

1) Those that increase the price of imports (tariffs)
2) those that decrease the price of exports and provide domestic prods with a cost of advantage (Substitutes)
3) those which restrict the quantity of imports (quotas, embraces, import licensing, voluntary export restraint)

all types of protection are inefficient as they lower TS

35
Q

Tariffs? and cause

A
  • tax on imported goods
  • causes the price of imports to rise and increases the international competitiveness of domestic goods
36
Q

Tariffs graph

A
  • SF determine PW below PD(equilibrium) = domestic prods are relatively inefficent in prod the good
  • country will import the goods
  • Before Tarrif, Dom consump is Q2, and dom prod is Q1
  • country imports Q1,Q2 to make up the storage
  • tariff increases the price of imported goods from pw to pw+t(STILL BELLOW PD)
  • SF decreases from SF to sf+t
  • dom comp decreases from q2 to q4 due to increase in price
  • dom prod increases from q1 to q3
  • size of imports decreases from q1,q2 to q3,q4
37
Q

5 Effect of tariffs

A
  • CS: decreases from area ACDEF to AB as consumers pay higher price for less goods
  • PS: producer surplus increases from G to GC as they receive higher price and gain a larger share of the market
  • govt receive equal to area E(size of tariff x import)
  • D and F are not accounted for (DWL)
  • TS decreases overall, market is inefficient
38
Q

Subsidy? and effect?

A

a financial payment provided by the govt to dom prods
- reduces the costs of prods, allowing local firms to be made competitive on an international scale

39
Q

Subsidy graph on import replacement goods

A
  • before subsidy, dom consump Q2 and dom prod is Q1
  • Sf below equilibrium establishing PW
  • size of import is Q1 TO Q2
  • subsidy decreases the costs of production
  • SD increases to SD+S
  • dom prods sell at a price of PW + s and their prod increases from Q1 TO Q3
  • size of imports decreases to Q3,Q2
40
Q

5 effect of subsidy on import replacement goods

A
  • prods receive PW+S(what cons pay+subsidy)
  • cost of subsidy is ABCD
  • PS: increases, cost of subsidy is greater
  • created DWL = BCE
  • although consumers are not directly affected, they are indirectly burdened as they pay for subsidy through tax
41
Q

Trade liberalisation and its history

A

refers to the reomval or reducation of trade barriers between countries in order to promote free trade
- been a global trend since 1947 when the General Agreement of Tariffs and Trade (GATT) was introduced
- aimed to reduce trade barriers and improve living standards
- by 1990, 125 nations signed this agreement

42
Q

World trade oragnsiaiton (WTO)

A
  • TL repalced by WTO in 1995
  • is the international organisation dealing with the global rules of trade between nations
  • promote TL by helping countries to negotiate and reduce trade barriers
  • as of 2024- 164 nations
  • holds conferences (every 2 years) settles trade disputes, and created agreements or values of trade
43
Q

2 important principles for world trade

A

established by WTO
- most favoured nation: all trading partners within an agreement are treated the same (cannot discriminate between them)
- national treatment: countries need to treat imported goods the same as domestic goods (once they enter the country eg safety standards)

44
Q

5 Arguments for TL

A
  • Increaed production: internaitonla trade increases the size of a firms market = increased production
  • production efficiencies: free trade improves efficient of allocations tends to higher productivity and increase total domestic output of g/s
  • benefits to consumers: consumers can now obtain a greater variety of g/s
  • employment: increase exporting industries and workers will be displaced, manufacturing industries asbosb unemployment
  • economy growth: increase living standard, real incomes
45
Q

7 Arguments for protections CANT DIE

A

Cheap Foreign Labour
Anti-dumping
National Security
Trade Balance
Diversification
Infant Industry
Employment

46
Q

Cheap Foreign Labour ? leads to and the problem?

A
  • allows companies to reduce production costs by employing workers from other countries where wages are lower
  • leads to cheaper goods for consumers and increased competitiveness for business in the global market
  • Problem: may lead to exploitation of workers and job losses in higher wage countries
47
Q

Anti-dumping? and the aim

A
  • the practice whereby a company exports a product at a price lower than the price it normally charges on its own home market.
  • to protect domestic industries from unfair competition and maintain a level playing
48
Q

What is National Security? and problem?

A

protect those industries that are vital to the economy in case of a wartime emergency
- restricting imports or promoting domestic production of goods deemed essential
-Problem: identifying those industries that are vital to the economy

49
Q

Trade Balance and the two types, and what it means

A
  • balance between a country’s exports and imports of g/s
    Two types:
    -Trade Surplus: country exports > imports: +VE trade balance =. eco strength and competition
    -Trade Deficit: imports > exports: -VE trade balance = eco vulnerability and dependence on foreign goods
50
Q

Diversification and 2 aims

A
  • engaging in international trade allows countries to spread their economic risks by accessing diverse markets and sources of goods and services.
  • can reduce its dependence on any single market or supplier
  • can help prevent economic downturns and promote stability.
51
Q

Infant Industry, aim and problem

A
  • infant or newly established industries need protection in their early years until they mature and can take advantage of economic of scale
    -over time become internationally competitive and develop a comparative advantage
    -Problem: industry becomes accustomed to operating with very little competition and the incentive to innovate and increase efficiency is removed
52
Q

Employment and its problem

A
  • protection will shift consumers’ spending from the foreign goods to domestic good and this increase employment in the protection industry
    -Problem: employment in the protected industry may rise but employment in other domestic industries will suffer
53
Q

why has aus direction of trade changed?

A

changed due to:
- historically, au had ties with UK/eurpoe
- UK joined EU, aus was forced to find new markets
- asia pacific was close with low transport costs
- has high popu growth and demand w/ limited supply of raw materials
- aus provides cheap energy, agri goods and resources to growing popu.

54
Q

4 Sources of CA

A

1) Climate and natural endowment: eg. has natural resources of iron ore, brazi has climate and rich soil for coffee beans)
2) Skillset of labour: eg country such as US with high level of skill produces g/s which require these skills
3) Captital to labour ratio: refers to the amount of capital available per workers.
- countries with large amounts of capital per worker will produce capital-intensive goods
- countries with low level of capital per worker will produce labour-intensive goods
4) Level of technology: relatively advanced economies produce gods requiring high level of technology eg computers

55
Q

4 assumptions of ca

A
  • there are two countries producing the same good
  • labour is mobile, it can be easily shifted from industry to another
  • zero transport costs
  • no barriers to trade
56
Q

What are the 5 arguments against TL

A
  • Structural UE: occurs short therm, impact large no of workers, their families and local economies.
  • economic instability: businesses, employees and consumers are more vulnerable to downturn in economy
  • dumping: countries with surplus products may dump them on world markets at below costs
  • infant industries: developing or new industries may find it difficult to become established in a competitive environment
  • environment issues: free trade can lead to pollution and other environment problems as companies fail to include these costs in the price of goods in trying to compete with companies
57
Q

What percentage of exports are commodities?

A

60%

58
Q

Subsidy graph on australian exporters

A
  • before subsidy, dom consump Q1 and dom prod is Q2
  • Sf above equilibrium establishing PW
  • size of export is Q1 TO Q2
  • subsidy decreases the costs of production
  • SD increases to SD+S
  • dom prods sell at a price of PW + s and their prod increases from Q2 TO Q2
  • size of export decreases to Q3,Q4
59
Q

6 Effect of subsidy on aus exporters

A
  • prods receive PW+S(what cons pay+subsidy)
  • consumers still play PW
  • cost of subsidy is ABCD
  • PS: increases, cost of subsidy is greater
  • created DWL = BCE
  • although consumers are not directly affected, they are indirectly burdened as they pay for subsidy through tax

econs (6 decks)

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