This tutorial introduces the concept of free trade and examines the advantages and disadvantages for trading nations.



Similar documents
Review Question - Chapter 7. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Economic. The EU-Australia. relationship

A TPP Agreement: An Opportunity for North Carolina. Trade & Investment with TPP Countries Is Good for North Carolina

TRADE BLOCS. Trade Blocs page 1

U.S. Trade Overview, 2013

UNCORRECTED PAGE PROOFS

Free Trade is Good for Everyone

AN AUGMENTED TRADE-WEIGHTED INDEX OF THE AUSTRALIAN DOLLAR 1

Comparative Advantage and the Gains from International Trade

World Manufacturing Production

ANALYSIS OF NZ MERCHANDISE TRADE DATA YEAR ENDED JUNE 2013

Fifty years of Australia s trade

ASSIGNMENT 1 ST SEMESTER : MACROECONOMICS (MAC) ECONOMICS 1 (ECO101) STUDY UNITS COVERED : STUDY UNITS 1 AND 2. DUE DATE : 3:00 p.m.

Trends in Australia s Exports 1

General Certificate of Education Advanced Level Examination January 2010

TPP#NEGOTIATION## OPPORTUNITIES#AND#CHALLENGES#FOR# VIETNAM#TEXTILE#&#APPAREL#INDUSTRY#

Economics 380: International Economics Fall 2000 Exam #2 100 Points

TRADE WITH SCALE ECONOMIES AND IMPERFECT COMPETITION (CONT'D)

Quantitative significance of growth Inequality and poverty. Sources of growth Global imbalance Tensions and risks

Global Investing 2013 Morningstar. All Rights Reserved. 3/1/2013

China s Accession to the WTO and its Impact on the Asian Economy. C. H. Kwan Nomura Research Institute

The Importance of International Services Standardisation in Australia

P R E S S R E L E A S E

Chapter 13 International Trade: Does it Jeopardize American Jobs

U.S. Trading Companies, 2012

ECO 445/545: International Trade. Jack Rossbach Spring 2016

Trade Creates Jobs for Indiana

THE BILATERAL FREE TRADE AGREEMENT BETWEEN CHINA AND SWITZERLAND A NEW WORLD OF OPPORTUNITIES

Globalization and International Trade

Market Access and Opportunities. Free Trade Agreements (Trade in Goods) Guide for SMEs

MKTG 680. Chapter 8 Exporting, Importing, and Sourcing. Introduction. Introduction. Export Selling vs. Export Marketing

GEORGIA PERFORMANCE STANDARDS International Domain [Type the author name]

A TPP Agreement: An Opportunity for Hawaii. Trade & Investment with TPP Countries Is Good for Hawaii. Jobs Exports Investment 64%

The Balance of Payments, the Exchange Rate, and Trade

a) Aggregate Demand (AD) and Aggregate Supply (AS) analysis

HRM Practices in MNCs: Australia. Australia

What Drives the Economy? Key Economic Variables

CHAPTER 16 EXCHANGE-RATE SYSTEMS

Mapping Global Value Chains

Macroeconomics: GDP, GDP Deflator, CPI, & Inflation

What is TPP? Which countries are involved in TPP?

Lecture 2. Output, interest rates and exchange rates: the Mundell Fleming model.

Main trends in industry in 2014 and thoughts on future developments. (April 2015)

The Return of Saving

A Trade Agenda that Gets Results

Internet address: USDL:

Factors affecting the inbound tourism sector. - the impact and implications of the Australian dollar

Australia s position in global and bilateral foreign direct investment

CHAPTER 19 INTERNATIONAL TRADE

Negotiation of a Free Trade Agreement between Hong Kong and the Association of Southeast Asian Nations. Consultation Document

AUSTRALIA S EXPORTS OF EDUCATION SERVICES 1

II. Merchandise trade

A layperson s guide to monetary policy

GCSE. Economics. Mark Scheme for June General Certificate of Secondary Education Unit A593: The UK Economy and Globalisation

Chapter 6 Economic Growth

Renminbi Exchange Rates and Relevant Institutional Factors Yi Gang

Exchange Rates: Application of Supply and Demand

OPEN MARKETS FOR INTERNATIONAL TRADE AND INVESTMENT

Consumer Credit Worldwide at year end 2012

CHAPTER 17 MACROECONOMIC POLICY IN AN OPEN ECONOMY

The Impact of Exchange Rate Movements on Vegetable Imports

Global Deployment of IT Solutions that Contribute to Social Progress

Table 1: Resource Exports Per cent of total nominal exports; selected years

List of tables. I. World Trade Developments

The first round of TPP negotiations was held in Melbourne in March 2010.

BANK FOR INTERNATIONAL SETTLEMENTS P.O. BOX, 4002 BASLE, SWITZERLAND

Refer to Figure 17-1

World Manufacturing Production

Chapter 4 Specific Factors and Income Distribution

AN INTRODUCTION TO TRADING CURRENCIES

How To Understand The Relationship Between Free Trade And Meat Production In Mexico

3 rd Brazil - China Capital Markets Forum

Economics 212 Principles of Macroeconomics Study Guide. David L. Kelly

A New Form of Services Trade Agreement Moving Ahead in Geneva: The International Services Agreement

Paper 2 (SL and HL) markschemes

Mechanics of Foreign Exchange - money movement around the world and how different currencies will affect your profit

I. World trade developments

Capital Market Integration and Stock Exchange Consolidation in the Asia-Pacific

Macroeconomic Influences on U.S. Agricultural Trade

Currency Crisis in Thailand:

Economic Implications of the Trans-Pacific and Asian Tracks

U.S. Agriculture and International Trade

We Shall Travel On : Quality of Care, Economic Development, and the International Migration of Long-Term Care Workers

Economics 101 Multiple Choice Questions for Final Examination Miller

REVIEW OF EXPORT POLICIES AND PROGRAMS CONTENTS

The Role of Banks in Global Mergers and Acquisitions by James R. Barth, Triphon Phumiwasana, and Keven Yost *

Comparing Levels of Development

Chapter-2. The Global Economic Situation and India s External Sector

relating to household s disposable income. A Gini Coefficient of zero indicates

6. Gross Domestic Product by Country

Glossary of trade terms

TYPES OF ECONOMIC SYSTEMS Definition Key Terms Countries

The global economy Banco de Portugal Lisbon, 24 September 2013 Mr. Pier Carlo Padoan OECD Deputy Secretary-General and Chief Economist

International investment continues to struggle

Latin America s s Foreign Debt

ON OECD I-O DATABASE AND ITS EXTENSION TO INTER-COUNTRY INTER- INDUSTRY ANALYSIS " Norihiko YAMANO"

US Exports to China by State

International Labor Comparisons

BTMU Focus Latin America Mexico: Export performance in 2014

PRIVATE ENTERPRISES PARTNERSHIP PACIFIC ( ) A. Expenditure (in Thousands of Kina) Appropriation TOTAL

Transcription:

Introduction Every day Australia and Australians benefit from trade. With a population of only 19 million people trade opens up a global market of more than five billion. Australia has a surplus of resources so we can sell the surplus to other countries and use the export dollars to buy other goods and services. People all around the world are eating Australian food, drinking our wine, using computers with Australian software and riding in Australian fast ferries. This tutorial introduces the concept of free trade and examines the advantages and disadvantages for trading nations. Content 1. Advantages of free trade Free trade occurs when there are no artificial barriers put in place by governments to restrict the flow of goods and services between trading nations. When trade barriers, such as tariffs and subsidies are put in place, they protect domestic producers from international competition and redirect, rather than create trade flows. 2. Increased production Free trade enables the countries to specialise in the production of those commodities in which it had a comparative advantage. With specialisation countries are able to take advantage of efficiencies generated from economies of scale and increase output. International trade increases the size of a firm s market, resulting in lower average costs and increased productivity.

3. Production efficiencies Free trade improves the efficiency of resource allocation. The more efficient use of resources leads to higher productivity and increasing total domestic output of goods and services. Increased competition promotes innovative production methods, the use of new technology, marketing and distribution methods. 4. Benefits to consumers Consumers benefit in the domestic economy as they can now obtain a greater variety of goods and services. The increased competition ensures goods and services, as well as inputs, are supplied at the lowest prices. For example in Australia imported motor vehicles would cost 25% more if the 1998 tariff levels still applied. Clothing and footwear would also cost around 14% more. 5. Foreign exchange gains When Australia sells exports overseas it receives hard currency from the countries that buy the goods. This money is then used to pay for imports such as electrical equipment and cars that are produced more cheaply overseas. 6. Employment Trade liberalisation creates losers and winners as resources move to more productive areas of the economy. Employment will increase in exporting industries and workers will be displaced as import competing industries fold in the competitive environment. With free trade many jobs have been created in Australia, especially in manufacturing and service industries.

7. Economic growth The countries involved in free trade experience rising living standards, increased real incomes and higher rates of economic growth. 8. Disadvantages of free trade Although free trade has benefits, there are a number of arguments put forward by lobby groups and protestors who oppose free trade and trade liberalisation. These include: * With the removal of trade barriers structural unemployment may occur in the short term. The Australian textile industry will face this problem when tariffs are reduced from 25 percent to 7 percent in 2005. However it is interesting to note that when tariffs increased greatly in the period 1974 1984 for textiles and footwear employment in the sector fell by 50 000 for the same period. * Increased domestic economic instability from international trade cycles, as economies became dependent on global markets. The Asian economic crisis in 1998 and economic slowdown in the global economy in 2001 illustrate this situation. * International markets are not a level playing field as countries with surpluses may dump them on the world markets below cost. Some efficient industries may find it difficult to compete for long periods under such conditions. * Developing or new industries may find it difficult to become established in a competitive environment with no short-term protection polices by governments. * Free trade can lead to pollution and environmental problems as companies fail to include these costs in the price of goods.

FACTS How Australia has benefitted from free trade * Over the past decade Australia's ratios of exports and imports to GDP have each risen from around 15 percent to 20 percent. * The expansion of exports has strengthened Australia's industrial base. * Greater access to imports has benefitted consumers and businesses by widening the choice of products available and by boosting the living standards for many Australians. * Reducing tariffs over the past decade has resulted in savings of $1 000 per year to the average Australian family. * Exporters pay more to workers and sell more per worker than non-exporters. Having a bigger market to sell to means that a business can sell more, earn more profits and pay higher wages. * Export growth has been essential to economic growth and job creation. Over 400 000 jobs were created between 1983 84 and 1993-94. According to one study the removal of all tariffs would create another 40 000 jobs within the next two years. Source: Department of Foreign Affairs and Trade Some current developments in the Asia Pacific region * Japan has been negotiating with Singapore a free trade agreement, and has studied the feasibility of agreements with Mexico and Chile. * The United States concluded a free trade agreement with Jordan in October 2000, and is negotiating bilateral free trade agreements with Singapore and Chile. In 1998, leaders of 24 countries from the Americas committed to negotiate a Free Trade Area of the Americas by 2005. * New Zealand in 2000 conducted a joint feasibility study on a free trade agreement with the Republic of Korea and expressed interest in agreements with Canada and the United States. It is examining a three-way agreement with Singapore and Chile. * Singapore is pursuing a number of free trade agreements. Its free trade agreement with New Zealand has been concluded and it has commenced bilateral negotiations with Australia, Japan, Mexico and the United States. It is exploring a possible free trade agreement with Canada. Singapore has indicated interest in negotiating a free trade agreement with the European Free Trade Association (the European Union, Switzerland, Norway and Iceland.) Source: Extracts from Opening Markets, The Benefits for Australia Department of Foreign Affairs and Trade 2000.