Australia’s Policies Regarding Free Trade and Protection
Expert reviewed • 21 July 2024 • 9 minute read
What are Australia's Policies Regarding Free Trade and Protection?
As part of the world's push for globalisation and increased interconnectedness over the last few decades, Australia's trade policy has undergone significant transformation. Shifting from a protectionist framework to a more liberalised approach, emphasising the benefits of free trade while also managing the challenges associated with decreased protectionism. This article outlines and explores concepts discussed in module 1. Read the articles in the module about trade and protection before reading the following. Trade Articles
What is the Impact of Free Trade on the Economy?
The push towards free trade has notably benefited the Australian economy. It has been linked to job creation, higher wages, and improved living standards. A study conducted by the Australian Productivity Commission found that over the last 30 years, free trade is estimated to have permanently lifted Australia's GDP by 5.4%. This economic enhancement is largely attributed to the expanded market access for Australian commodities and services, which increases the country's overall economic productivity and competitiveness on a global scale.
Most of this economic growth can be attributed to China's high demand for natural Australian resources such as iron ore. The graph below illustrates this as China is seen as our largest trading partner.
How Does Australia Balance Free Trade and Protection?
Australia's trade policy landscape reflects a delicate balance between the benefits of free trade and the need for targeted protection in certain industries. The country's approach to this balance has evolved over time, shaped by various factors:
Increasing Economic Efficiency vs Protecting Domestic Industries:
Free trade policies promote economic efficiency by allowing resources to be allocated based on comparative advantage. However, this can also expose domestic industries to increased competition. Australia has sought to strike a balance by maintaining a generally open trade regime while providing targeted support to sensitive industries through tariffs, trade remedies, and adjustment assistance programs.
For example, in 2020, Australia joined the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement among 15 Asia-Pacific nations. RCEP aims to reduce trade barriers and promote investment. This allowed Australia to leverage its strengths in agriculture and mining. However, Australia balances this with protectionist measures like anti-dumping duties and safeguards to shield sensitive industries from unfair competition. For example, tariffs were imposed on certain imported steel products to protect the domestic steel industry.
Geopolitical Considerations:
Australia's trade policies have also been influenced by geopolitical factors, such as its strategic relationships with key trading partners. These partners are mostly located in the Asia-Pacific region. As such, the country has sought to balance its economic interests with its foreign policy objectives.
For example, the signing of the Regional Comprehensive Economic Partnership (RCEP) in 2020 exemplifies this approach, as it aims to bolster economic ties with 15 member countries, including key partners like China, Japan, and South Korea. However, geopolitical tensions, particularly with China, have complicated this dynamic. Despite the economic benefits of RCEP, Australia has faced trade disruptions with China, highlighting the challenge of balancing economic interests with foreign policy objectives. This strategy reflects Australia's effort to diversify its trade partnerships while managing geopolitical risks.
What Type of Protectionist Measures Does Australia use?
While Australia has embraced free trade, it has also maintained certain protection policies to safeguard its domestic industries.
- Tariffs: Although Australia's overall tariff levels are low, it still maintains tariffs on certain sensitive products, such as textiles, clothing, and passenger motor vehicles.
- Anti-Dumping and Countervailing Measures: Australia has a strong anti-dumping and countervailing system to address the issue of unfair trade practices. When an imported product is found to be dumped (sold at less than its normal value), Australia can impose additional duties to level the playing field for domestic producers.
- Non-Tariff Barriers: Australia also employs non-tariff barriers, such as technical standards, sanitary measures, and local content requirements. While these measures are often justified on grounds of health, safety, or environmental protection, they can also serve to restrict trade and shield domestic producers from foreign competition.
More on these specific methods of protection can be found in module 1: Australia’s Methods Of Protection