Australia's Trade Policies

Question 1

What is protection?

Answer 1

Restrictions on imports from other countries

Question 2

What are the 5 main types of protection?

Answer 2

• Tariff
• Quota
• Subsidy
• Local content rules
• Export incentives

Question 3

How do Australia’s protectionist policies compare to the rest of the world?

Answer 3

Australia is one of the least protected economies in the world, with average tariffs of 0.8% (compared to US’ 13.8%)

Question 4

What are Australia’s main protectionist policies?

Answer 4

1) Export incentives (Austrade)

2) Agricultural quarantine laws

3) Anti-dumping regulations

Question 5

What do Australia’s export incentives involve?

Answer 5

The government agency Austrade provides Export Market Development Grants (money) to help Australian firms to start marketing (advertising) their product in other countries

Question 6

What do Australia’s quarantine laws involve?

Answer 6

Restrictions on importing plant products (e.g. wood, food) in order to prevent plant diseases affecting domestic farms

Question 7

What do Australia’s anti-dumping regulations involve?

Answer 7

The WTO has criticised Australia’s Anti-Dumping Commission for frequently imposing measures against foreign firms when there is insufficient evidence of dumping

Question 8

Name TWO multilateral trade agreements that Australia is part of

Answer 8

• WTO
• APEC
• AANZFTA
• CPTPP
• RCEP

Question 9

Describe features of APEC

Answer 9

• The Asia-Pacific Economic Cooperation
• 21 countries
• Has mainly increased trade is by coordinating regulations on products (such as safety requirements for electrical goods) so that they can be easily sold in multiple countries
• Was the starting point for negotiations of the CPTPP
• Slow progress on free trade

Question 10

Describe features of the TPP-11 trade agreement.

Answer 10

• Multilateral trade agreement in the Pacific region, including Japan, Mexico and Australia
• US pulled out of negotiations due to concerns about structural unemployment
• Reduces tariffs and regulations restricting service imports
• Has a controversial clause allowing firms to sue governments if new policies unfairly reduce profits

Question 11

List 4 ways an Australian firm would be affected if the Australian Government introduced a tariff

Answer 11

1) Less competition

2) More production

3) Higher input costs

4) Long-term: worse efficiency

Question 12

List 4 ways an Australian firm would be affected if the Australian Government removed a tariff

Answer 12

1) More competition

2) Less production

3) Lower input costs

4) Long-term: better efficiency

Question 13

List 3 ways Australian individuals would be affected if the Australian Government introduced a tariff

Answer 13

1) Higher prices

2) Lower structural unemployment

3) Long-term: Lower incomes and higher unemployment

Question 14

List 3 ways Australian individuals would be affected if the Australian Government removed a tariff

Answer 14

1) Lower prices

2) Higher structural unemployment

3) Long-term: Higher incomes and lower unemployment

Question 15

List 4 ways the Australian Government would be affected if they introduced a tariff

Answer 15

1) Tax revenue from the tariff

2) Lower welfare spending

3) Higher political support

4) Long-term: Lower growth and tax revenue

Question 16

List 4 ways the Australian Government would be affected if they removed a tariff

Answer 16

1) Loss of tax revenue from the tariff

2) Higher welfare spending

3) Lower political support

4) Long-term: Higher growth and tax revenue

Question 17

Why would removing a tariff lead to higher employment in the long-term?

Answer 17

Removing a tariff would expose firms to foreign competition. As a result, firms would find ways to improve efficiency and lower their prices.

Also, inefficient firms would close, and resources would be reallocated to industries in which the country has a comparative advantage.

As a result, other countries would be more likely to now purchase the countries’ exports, increasing production and the derived demand for labour.

Question 18

Why would a tariff worsen the international competitiveness of firms in the economy, but a subsidy improve it?

Answer 18

A tariff shields firms from foreign competition, so they have less incentive to improve efficiency. As a result, they do not keep up with efficiency improvements made by foreign firms and hence are less internationally competitive.

On the other hand, a subsidy allows firms to charge lower prices, so they immediately become cheaper (more competitive) than foreign firms.

Question 19

List 6 protectionist policies used by Australia’s major trading partners

Answer 19

1) Agricultural protection by the EU, Japan and US

2) Chinese restrictions on Australian products in response to Australian support for a COVID investigation

3) US protection on steel and aluminium

4) EU’s Carbon Border Adjustment Mechanism

5) Chinese covert protection of strategic industries, including the Made in China 2025 policy

6) Sanctions on Russian commodities

Question 20

Provide specific details of the Chinese restrictions on Australian imports

Answer 20

• A 200% tariff on Australian wine and 40% tariff on cotton
• Bans on Australian beef and lamb imports
• Bans on the use of Australian coal in electricity power stations

However, most have these have been removed since late 2023

Question 21

Provide specific details of US protection on steel and aluminium

Answer 21

• China has been dumping steel
• In 2018, US imposed tariff on Chinese steel, but a quota on Australian steel
• The quota is big so is unlikely to actually reduce Australian exports

Question 22

List 2 ways Australian firms would be affected if a trade partner introduced a new protectionist policy

Answer 22

1) Lower profits

2) Less production

Question 23

List 2 ways Australian individuals would be affected if a trade partner introduced a new protectionist policy

Answer 23

1) Higher unemployment

2) Lower incomes

Question 24

List 3 ways the Australian Government would be affected if a trade partner introduced a new protectionist policy

Answer 24

1) Higher welfare spending

2) Lower tax revenue

3) Likely to retaliate

Question 25

List 2 ways Australian firms would be affected if a trade partner removed a new protectionist policy

Answer 25

1) Higher profits

2) More production

Question 26

List 2 ways Australian individuals would be affected if a trade partner removed a new protectionist policy

Answer 26

1) Lower unemployment

2) Higher incomes

Question 27

List 3 ways the Australian Government would be affected if a trade partner removed a new protectionist policy

Answer 27

1) Lower welfare spending

2) Higher tax revenue

3) May reduce Australian protection as well

Question 28

A trade partner introduces a subsidy. How would this affect Australian individuals?

Answer 28

1) Lower prices

2) Higher unemployment

3) Lower incomes

Question 29

A trade partner removes a subsidy. How would this affect Australian individuals?

Answer 29

1) Higher prices

2) Lower unemployment

3) Higher incomes

Question 30

What are 3 likely changes to the structure Australian industry due to current trends in the global economy?

Answer 30

1) Continued growth in emerging economies like China and India would lead to growth in export services such as education and tourism (though this has been slowed by covid border closures and China’s trade sanctions on Australia)

2) Global concern about climate change may lead to reduced demand for Australian fossil fuels, especially coal

3) Global concern about climate change may increase demand for sustainable products Australia could export, such as ‘green hydrogen’ fuel (made from water and renewable energy), or lithium mining (for batteries)