Trade liberalisation essay study Flashcards
para 1
Trade liberalisation has been a major trend in the world economy since the Second World War.
It is the opposite of protection.
Liberalising trade is achieved by removing or reducing any restrictions which limit trade in goods and services and reducing protection.
Protection refers to any action by the government designed to give the domestic producer an artificial advantage over a foreign producer
There is a very strong link between economic growth and international trade.
The best way to increase world incomes and living standards and economic growth.
Economic growth can be defined as the increasing ability for an economy to satisfy the needs and wants of its people.
The period of fastest growth in world trade (1950-73) was also the period of highest global economic growth.
Therefore, it can be concluded that the removal of barriers to international trade increase living standards.
para 3 - post graph
Trade liberalisation delivers a more productive, outward-looking economy with higher incomes and more job opportunities.
It delivers more appropriate use of resources.
This occurs because resources are re-allocated to more efficient producers and industries when restrictions which limit trade in goods and services are removed.
The more appropriate and efficient allocation of resources means consumers pay a lower price and there is a lower input cost for producers
para 4
Trade liberalisation and the benefits of free trade are based on the theory of comparative advantage.
Countries gain and have a comparative advantage when they specialise in producing goods and services that can be produced at a lower opportunity cost than other nations.
By exporting goods and services that can be produced more efficiently and importing goods and services that other nations produce at a lower opportunity cost, a country can increase both its production and consumption.
Specialisation and trade results in a higher level of real income, greater consumption and higher living standards.
para 5
The advantage of increasing trade liberalisation does have short term effects and short term costs in terms of creating unemployment in the affected industries.
The removal of protection will cause a re-allocation of resources from less efficient industries to more efficient sectors, which will create structural unemployment.
However, employment in the non-protected industries actually increases.
This leads to a net increase in employment.
para 6
By lowering protection and increasing trade liberalisation, consumers benefit, input costs are lowered and efficient industries are able to grow and prosper.
The net result is a more productive and competitive Australia.
part b) para 1
The composition of Australia’s trade reflects Australia’s current comparative advantage.
Traditionally, Australia has been a major exporter of primary commodities such as minerals, gas and resources.
This is due to Australia’s large natural resource to population ratio and substantial mineral wealth.
para 2 part b)
Over the past few decades there has been a significant increase in the relative importance of mineral and energy exports and a decline in the importance of rural exports.
Agriculture exports still comprise a relatively large proportion of Australia’s exports compared to other industrial economies.
para 3 part b)
For the first half of the 20th century, the rural sector has denominated Australia’s exports, accounting for over half of all exports.
However, since the 1970’s, rural exports have fell from 40% to 12% in 2014. Resources such as minerals and energy exports have become the dominant export.
In the 1970’s, minerals and energy exports were at 26% and have risen to 55% in 2014. This has been quite the increase since 2000.
para 4 part b)
The rapid growth of China and other Asian economies has resulted in this major resource boom in Australia from 2001- 2012.
The fact that Australia has a comparative advantage in resources such as iron ore has also lead to Australia specialising in iron ore exports and the increase in mineral and energy exports.
Over this same time period, there has been a decline in both manufacturing and services exports.
para 5
part b)
For imported goods in Australia, the most imported goods are manufactured goods.
These are either in the form of consumer goods or as inputs for Australian industry.
In contrast to exports, there are very few imported primary goods, other than fuels.
