Australia's trade policies encompass both free trade and protection measures. These policies have significant implications on all sectors of the economy: individuals, firms and governments. These policies are designed to balance the benefits of increased economic integration with the protection of domestic industries from unfair global competition.

The Implications For Individuals

Australian trade policies can directly influence the cost of living, purchasing power and job opportunities for individuals. The most significant impacts on individuals include:

Consumer Prices:

Trade liberalisation, through the reduction of protection, can lead to lower prices for consumers. As imported goods become cheaper, Australians benefit from increased affordability and a wider variety of products. For example, the removal of tariffs on imported clothing and footwear under the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) has resulted in lower prices for Australian consumers.

A study by the Productivity Commission found that the removal of these tariffs led to a 7.5% reduction in retail prices for clothing and a 5.5% reduction for footwear. More about this study can be found on the Productivity Commission website: Productivity Commission Study

However, trade protection measures, such as tariffs or quotas, can raise prices by shielding domestic industries from foreign competition. Additionally, with an increased purchase of imports comes the risk of imported inflation. This can otherwise increase the domestic cost of living for Australians. As such, there must be a sustainable balance between trade and protection.

Employment Opportunities:

Trade policies can have both positive and negative effects on employment. Trade liberalisation can create new job opportunities in export-oriented industries, as businesses expand to meet increased foreign demand. However, it can also lead to job displacement in import-competing sectors, as domestic firms face heightened competition from foreign producers. Thus, a balance between protecting domestic industries and utilising trade to increase jobs in export-oriented industries must be met. Without a balance between the two, significant periods of unemployment for specific industries can occur. The following graph displays the different types of job creation Australia has experienced.

As we can see from the graph, the only industry in Australia where jobs were lost was in the manufacturing industry. This is due to Australia's small manufacturing industry being unable to compete with larger, more efficient manufacturing economies such as China.

The Implications For Firms

Australia's trade policies have significant implications for businesses, influencing their competitiveness, market access, and ability to participate in global value chains.

Industry Competitiveness:

Free trade exposes domestic firms to increased foreign competition. This, in turn, can spur innovation, productivity improvements, and cost efficiency in the economy. However, it can also put pressure on less competitive industries, leading to market share losses and potential business closures. Thus, trade protection measures, while providing short-term relief, can hinder long-term competitiveness by reducing incentives for innovation and efficiency.

Market Access:

Free trade agreements open up new markets for Australian firms, providing access to millions of potential customers. By reducing trade barriers, these agreements make it easier for businesses to export their goods and services, and to establish a presence in foreign markets.

The Implications For Governments

Trade policies have significant implications for governments, affecting revenue collection, policy autonomy, and the ability to pursue domestic objectives.

Tariff Revenue:

The reduction or elimination of tariffs can lead to a loss of government revenue. As tariffs are a form of tax on imported goods, their removal can result in a decrease in tax collections, potentially impacting government budgets.

For example, the Australian government has estimated that the removal of tariffs under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has resulted in a loss of tariff revenue of around $220 million per year. However, this loss is expected to be offset by the broader economic benefits of increased trade and investment.

Policy Autonomy:

Trade agreements, particularly multilateral arrangements, can constrain governments' policy autonomy. By committing to trade rules and disciplines, governments may face limitations on their ability to implement certain domestic policies. This comes in the form of having to reduce subsidies, local content requirements, or environmental regulations, if they are deemed to be trade-distorting.

Domestic Objectives:

Trade policies can have implications for governments' ability to pursue domestic objectives, such as regional development and industry support. Free trade may require governments to phase out certain support measures or assistance programs. On the other hand, trade protection can be used to promote specific industries or regions.

For example, the Australian government's decision to impose anti-dumping duties on imported steel products has been driven by the objective of supporting the domestic steel industry and preserving jobs in regional areas. However, this protection has come at the cost of higher prices for downstream industries and consumers.