Free Trade and Protection

Question 1

Outline trends in Australia’s protection levels over recent decade

Answer 1

1970s - Commission estimated effective rates of assistance to the manufacturing and agricultural sectors
1973 - 25% across the board tariff cut
2000 - rate of assistance has been 5%, down to 3.9% recently
Average tariff level: 0.9% - making Aus one of the least protectionist ecos

Question 2

How did Austrade’s Export Market Development Grants (EMDG) Scheme impact free trade and protection?

Answer 2

• Reimburses exporters for some of their costs in promoting their X in new markets
• Aims to provide approx. $140m in grants to around 4000 bizs to help them find X markets and enhance X protection

Effectiveness - 2015 Review - found that each dollar spent generates net economic benefits (valued from 1.55 - 7.03 $)

Question 3

Outline important aspects of the 2005 AUSTFA (US and AUS) free trade agreement

Answer 3

• significant tariff reductions on a no. of goods (agriculture + manufacturing)
• Tariffs on automatives removed immediately and tariffs on all goods were removed in 2015
• Aus’s 3rd largest-trading partner - (9% of Aus’s 2-way trade)

Question 4

Outline important aspects of the AANZFTA 2010 (ASEAN - Australia - New Zealand)

Answer 4

• covers approx. 20% of Aus trade in g/s
• creates free trade for over 650million people
• combined GDP of over US$4.4trillion
• forecast to boost Aus eco by 19b US$

Question 5

What is the effect of a reduction in protection levels on FIRMS?

Answer 5

In the long run - may be beneficial
- more efficient and able to compete with businesses

In the short run - creates winners and losers

• M-competing industries may go out of business
• lower tariffs = lower input costs for firms

Productivity Commission (2020) - estimated that abolishing tariffs on intermediate inputs would reduce input costs by approx. $2billion per year

Question 6

What is the effect of a reduction in protection levels on INDIVIDUALS?

Answer 6

In the short run

• increase in structural UE as inefficient firms close
• consumers have access to a wider range of products at lower prices

In the long run
- job opportunities increase in internationally competitive sectors

E.g. while manufacturing industries declined - tourism. education and service sectors have grown: 2019 - education represented over 40% of Aus’s service X - was 11% in 1990s

Question 7

What is the effect of a reduction in protection levels on the GOVERNMENT?

Answer 7

In the short run

• cutting tariffs - lower govt revenue
• may have adverse political consequences
• spending on structural adjustment programs may increase

In the long run
- sustainable eco growth will raise revenue

May receive backlash - while the negative consequences of reducing protection are clear - the benefits take longer to emerge - can lose votes

Question 8

How do international protectionist policies impact Australia?

Answer 8

• Aus X become less IC in OS markets
• Faced with trading blocs (e.g. EU)
• non-tariff barriers are arguably more restrictive (restrictions, licensing rules etc.) - impacts service sectors greatly
• natural barriers such as language, location

Centre for International Economics estimated that a global reduction in tariffs that would reduce M prices by 10% would increase Aus’s GDP by 0.6%/year