Protection and global trade Flashcards
Tarrif
Tariffs are government imposed taxes on foreign imports which in turn raise the price of the good. In the graph below it is important to note that the supply and demand curves represent domestic levels.
Describe graph
Tariffs decrease the standard of living as they increase the price and reduce the variety of goods available to consumers.
Subsidy
Subsidies are financial assistance given to domestic producers which enables them to lower their prices and compete with international competition, this price drop is shown in the rightward shift of the supply curve from ‘S’ to ‘S + subsidy’. To determine the cost of the subsidy it’s the vertical distance between the supply lines ‘S’ and ‘S + subsidy’.
Import quota
An import quota limits the volume of a good that is permitted to be imported over a period of time. The quota guarantees domestic producers a share of the market. The supply and demand curves in the graph below represent the domestic levels. The ‘P world’ line represents the price of the good if there is was no tariff applied and the space between the supply and demand (Q1-Q4) represents the volume of goods imported, if the quota is implemented the level of imports reduces to Q2-Q3 raising the price of the good which contracts the demands and increases the domestic supply
Local content rules
Local content rules specify that a goods must contain a minimum level of locally made parts. In return for following the local content rule, the imported components may not attract a tariff.
Export incentive program
Export incentives are regulatory, legal, monetary, or tax programs that are designed to encourage businesses to export certain types of goods or services.
free trade agreement
A free trade agreement is a formal agreement designed to break down barriers of trade between the countries. There are two types of free trade agreements, bilateral, meaning between two countries, and multilateral (or regional), meaning between three or more countries. Regional trade agreements have multiplied in recent decades going from 27 in 1990 to 467 in 2019. Examples of regional trade agreements include the European Union (EU), the North American Free Trade Agreement (NAFTA), the Asia-Pacific Economic Cooperation (APEC), and Association of Southeast Asian Nations (ASEAN)
Trade bloc
A trade bloc is an agreement between countries (usually regionally based) to drop protection barriers to countries in the agreement. This is usually done to the exclusion to other countries. Examples of trade blocs includes the European Union (EU) and the North American Free Trade Agreement (NAFTA)
effects on Australia and the global economy flow
- European Union
- trade war between China and US
- effect of protection on Australian goods
- automobile protection
- Asians being Asians bruh
- protection effects on the economy
- China wine tarrifs
European Union
European Union who have a heavily subsidised agricultural industry which absorbs just under 40% of the EU’s budget, effectively limiting Australia’s ability to penetrate the market
China US trade war
another example of this as stated by the Department of Agriculture is that the trade war between the US and China has led to weaker growth in China, which means reduced demand for many Australian products
Tax Foundation which predicts that the imposed tariffs from Trump will in the US alone decrease GDP growth in the long run by 0.23%, and slow wage growth by 0.15%.
effect of protection on Australian exports and imports
- subsidies in overseas economies and tariffs on Australian goods reduce the competitiveness of Australian exports
- A 2018 report by the Centre for International Economics found that a global reduction in tariffs that reduces import prices by 10% would increase Australia’s GDP by 0.6% a year.
- Another effect that global protection has on the Australian economy is an increased production cost which is caused by higher import prices
automobile protection
‘The Australian Automobile Association’ website, the tariff on automobiles from overseas is still at 5% despite Australia not manufacturing cars anymore, this drives up the prices of vehicles in Australia.
Asians being Asians bruh
Asia make it difficult for Australian manufacturers that specialise in the production of low cost high volume products, because of this many manufacturers shut down (e.g. motor industries) with the phasing out of subsidies and tariffs on foreign imports.
effects on global economy
- The second way that protection policies effect the global economy is through increased global inequality this is caused by the increased impact that trading blocs have on developing economies that are often excluded from access to the markets of advanced economies.
- misallocation of resources, this is caused by protectionist policies making it more difficult for individual economies to specialist in the production in which they are most efficient and through shielding non-competitive industries
china wine tariffs
During the recent Covid pandemic China pushed wine tarrifs onto Australian exporters as a punishment for Australian intelligence forces investigating the origins of COVID19
