Protection Essay Flashcards
Intro - define protection
Protection refers to any tariff or non tariff barriers which provide domestic producers with an artificial advantage over foreign competitors
Intro trend/context
Australia has pursued a policy of trade liberalisation in accordance with WTO regulations, decreasing the average rate of tariffs from 25% in 1982-83 to 0.9% in 2018
Intro - argument
This policy has had short term ramifications on unemployment, economic growth and the government’s fiscal position
However, in the long term, decreased protection has raised living standards, created new employment opportunities and consolidated the government’s fiscal position through these economic benefits.
Australia has experienced economic benefits associated with reduced international protection levels through its involvement in the WTO and more recently, the formation of regional bilateral and multilateral Free Trade Agreements
However, international protectionist policies and trading blocscontinue to impact the Australian agricultural industry, and into the future, rising global protectionism and the retaliation of China for Australia’s support of an inquiry into COVID 19 will have adverse economic effects on the agricultural industry.
Theory paragraph - principles of free trade.
Free Trade theory operates under the principle of the comparative advantage, whereby economies produce the goods and services with the lowest opportunity cost .
This leads to increased specialisation of production in the long term, fostering economies of scale through lower unit costs of production .
Short term economic implications on unemployment and economic growth
Firms in industries which lose subsidiation will face significant decreases in profit margins, which will cause may firms to become too inefficient to continue operations.
After the elimination of subsidies in the automotive industry in 2015, all car manufacturers in Australia ceased operations.
Combined with the elimination of subsidies in the TCF industries, this lead to structural unemployment, with 2000 job losses associated with the shutdown of the TCF industries and 50 000 with the automotive industry
Long term economic implications on living standards, wages, family income - example
- The productivity commission estimates that from 1986-2016, Australia’s decreased levels of protection caused an increase in the average family income by $2670
- 7.4% Increase in real wages directly associated with trade liberalisation
- Furthermore, estimated increase in GDP by 5.4% from 1986-2016
Theory paragraph - elimination of protection
In order to operate under a system of free trade, countries must eliminate all forms of protection, including subsidies.
As seen in the diagram subsidies act to provide an artificial advantage for domestic producers over foreign importers, including Australian importers, through providing direct funding to firms or industries.
This lowers the market price of the good from P to P1 and makes domestic products less expensive relative to imported products
Impact of elimination subsidies on the government
Furthermore, the elimination of tariffs can negatively impact the government’s fiscal position.
Prior to trade liberalisation, tariffs were a primary source of government revenue in the economy
Currently, the 2.0 billion in tariff revenue collected by the government in 2018-19 accounts for less than 1% of total
Counterargument/Short term positive of eliminating tariffs
Short term positive of eliminating subsidies
In the short term, the elimination of tariffs can lower the cost of imported inputs into the production process for firms.
Reduced expenditure on subsidies mitigates any lost revenue from tariffs
Short term negative of eliminating subsidies on domestic inflation
In the short term the elimination of subsidies can increase domestic inflationary pressures through raising the market prices of goods in the domestic economy.
However, these impacts are mitigated by the decresed inflationary pressures associated with tariffs
Impact of international protection on Australian agricultural industry - theory
Australia has a comparative advantage in the agricultural industry, or low opportunity costs relative to other industries.
Impact of international protection on financial services - theory + example
Whilst there are few tariff measures on financial services, many countries banking services are protected from foreign competition by restrictions on granting licences for overseas-owned banks.
This has limited the growth of Australia’s financial services industry in overseas markets.
The Australian productivity commission estimated in 2010 that liberalisation in the services industry could increase Australian services exports by $11 billion per year in 2025.
Impact of international protection/trade blocs on Australian agricultural industry - example
Australian agriculture is significantly disadvantage by trading blocs, including the EU, which heavily subsidises agricultural production through the Common Agricultural Policy, which absorbs 34% of the EU budget and supplies around 1/5 of European farmers’ incomes
Current events/trends in international protection
Australia’s support for the recent inquiry into the origins of COVID 19 has resulted in retaliation through the imposition of 80% tariffs on Australian barley exports.
Into the future, this will continue to affect the Australian agricultural industry and could result in long term structural change in Australian industry, with the agric
Current events/trends in international protection
Australia’s support for the recent inquiry into the origins of COVID 19 has resulted in retaliation through the imposition of 80% tariffs on Australian barley exports.
Into the future, this will continue to affect the Australian agricultural industry and could result in long term structural change in Australian industry, with the agricultural industry suffering ongoing effects of the drought.
Long term impacts theory
In the long term, reduced protection will lead to overall increases in employment and improvements to living standards.
This is due to the increased efficiency stimnulated by higher levels of domestic competition. This in turn, will cause resources to be reallocated from inefficient industries to internationally competitive sectors, increasing employment in these industries.
Long term impacts - examples
This is reflected in the commodity boom of 2003-07, estimated to have added 100 000 jobs directly to the mining sector, whilst the economic growth generated by strong export revenue (X), underpinned the creation of a further 1.5 million jobs in non mining sectors.
This led to structural changes in the Australian economy
