Impact Of Trade Policy On The Economic Condition Of Australia

Overview of Trade Policy

In the present scenario Australia has negotiated with a number of trade agreements in order to promote economical development of the country. In recent trends, the wave of trade development is being disrupted by the significant changes in the policies of protectionism (Antràs and Yeaple 2013). In the current state these changes has been considered as the direct consequences responsible for the sudden changes in the nature of trade agreements. In this regard, it is necessary to present a brief idea about the concept of trade policy. Trade policy can be referred to as the set of rules which is concerned with the global exchange of goods which includes tariffs, import and export regulations and quotas (Barro 2013). The trade policy has been introduced with an aim of developing smooth and effective process of trade between different countries. In modern era the concept of international trade policy has become increasingly important. The countries with restrictive trade policies sometimes face the problems of barriers to trade. However, the countries having less restrictive trade policies enjoy faster and better economic growth compared to those countries having trade protectionism. In this report emphasis has been laid on the trade policy of Australia (Bishop et al. 2013). In this regard, the negative and positive impacts of trade policy on the economy, industries and the employment structure of Australia have been discussed in detail. Economists have argued on various points regarding the positive and negative impacts of trade policy in the economic development of Australia (Borchert, Gootiiz and Mattoo 2013). Various changes have been made to the trade policy with an aim to reduce trade barriers and fostering the activities of export. The changes made in the trade policies mainly comprised of the promotion of export laws, reductions in trade restrictions and the simplification of procedures of trade. 

In order to highlight the impact of trade policy on the economic condition of Australia it is important to provide an explanation of different theories of trade policies. Modern economists put emphasis on the part that countries with free trade policies have been successful in promoting their economic development to large extent (Borchert, Gootiiz and Mattoo 2013). On the other hand countries with trade protectionism create barriers to trade by restricting trade relations with different countries (Burgess, Connell and Winterton 2013). According to the traditional trade theory, the promotion of free trade or trade liberalization by reducing restrictions in import such as tariffs and NTBs as well as the restrictions on exports shall promote the welfare of the country strategically (Bown and Crowley 2014). In Australia, there had been sudden changes in these welfare improvements which have been possible due to specialization gains and consumption gains.

Theories of Trade Policies

Australia is known for its greatest development in sectors of agriculture, mining and utilities. Australia has been recognized as the world’s most important open and varied economy as it comprises of highly skilled labor force with an extensive service sector (Chaisse and Matsushita 2013). In this regard it is noteworthy to mention here that the service sector of Australia promotes accounting of gross domestic products. As a growing financial state, the contribution of Australia is remarkable as it promoted the regulation of various financial sectors and services (Cooper and Riezman 2013). In this regard, applying the traditional theory in the economic scenario of Australia it can be rightly stated that Australia has adopted the concept of free trade policy in order to reduce barriers in trade (Costinot et al. 2015). Free trade agreement has been signed by the government of Australia in order to provide better communication to the international markets (De Melo 2015). The import costs of Australian businesses have reduced considerably.  

According to the dynamic theory, static gains can be obtained from trade with the relocation and specialization of existing resources (Dorn and Hanson 2015). Modern economists were of the view that such resources are small in comparison to the dynamic gains caused due to increase in the rate of growth and the other additional resources of the country (Downes, Hanslow and Tulip 2014). It is noteworthy to mention here that dynamic gains can be obtained with an acceleration and accumulation of physical and human capital. The dynamic theory emphasized on the par that a free trade has various positive impacts on the growth of the economy of a country (Fooks and Gilmore 2014). However, in case of Australian economy various measures of openness have been applied in order to evaluate the positive and negative impact of trade policy. It has been observed that Australia being an open economy has promoted to the economic well being of the country since time immemorial (Francois and Pindyuk 2013). With the development of free trade in Australia, the economic condition has improved considerably as it reduced barriers to trade making the process of trade efficient and hassle free (Gereffi and Sturgeon 2013). However, according to modern economists free trade had negative impact on the economic growth of Australia. Some economists were of the view that trade restrictions in Australia benefited the economic prosperity of the country (Hajkowicz et al. 2016).

Indicator Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Unit	Result
Real gross domestic product	Percent	+5.6
Real national income	Percent	+5.2
Real consumption	Percent	+3.1
Real exports	Percent	+27.4
Real imports	Percent	+28.8
Real investment	Percent	+12.8
Real wage	Percent	+8.4
Nominal wages	Percent	+4.8

Table 1: [Liberalization of trade as estimated from 2011 to 2016].

Australia’s Economic Development and Free Trade Policy

Source: [Created by the Author].

The Neo-classical Growth theory laid emphasis on the positive effects of trade liberalization in increasing the levels of income in a developed economy (Hall et al. 2015). In this regard applying the theory of neo-classical growth theory it was argued by modern economists on the point that how the trade policy created impact on the economic development of Australia. It has been stated by various economists that a development of free trade has proved to be beneficial in reflecting the true nature of the market demands and supply of Australia (Handley 2014).

The international trade theory however focused on the principle of comparative advantage with the specialization of goods that possess lower opportunities in increasing global production and the economic welfare of the nations (Kee, Neagu and Nicita 2013). In this regard, modern economists have argued that with an increase in global production in Australia which has been possible due to the adoption of free trade policy, it has been successful in specialization of goods (Malik et al. 2014). Furthermore, it has been observed that Australia has been benefitted by imposing trade restrictions on certain goods because in this way it could protect the weaker industrial sections from foreign competition. It is noteworthy to mention here that with the development of various international organizations like the OECD and the World Bank the promotion of trade openness was made possible (Matusz and Tarr 2017). Since time immemorial these organizations has been generating positive impact on the economic growth of Australia. Following the theory of international trade theory, Australia has entered into bilateral free agreements and due to this reason the number of free trade agreements has increased drastically (McLachlan 2013). 

The major industries in Australia can be classified as:

• Metals and mining industry.
• Financial industry.
• Energy and utility industry.
• Pharmaceutical industry.
• Material industry.

Industrial development has been possible in Australia due to various reasons. Firstly, the natural resources present in Australian soil have helped in uplifting the metals and mining industries in Australia (McLachlan 2013). Secondly, Australia is surrounded by vast oceans and water bodies which proved to be an ideal trade location. In this regard the theory of free trade policy can be stated in order to ensure that there exist no artificial barriers in trade (Patunru and Rahardja 2015). It is noteworthy to mention in this regard that the restrictions to trade are mainly placed by the government authorities in order to restrict the flow of goods and services between various trading nations.

Impact of Trade Policy on Major Industries in Australia

Applying the theory of trade policy the positive and negative impacts on the development of industrial sector in Australia can be emphasized. Trade policies help in prevention of monopolies (Rahman and Mamun 2016). It has been observed that with the promotion of free trade policies in Australia it can be able to take steps towards the prevention of monopolies. With the rapid development of Australian industries, the domestic firms in Australia have faced foreign competition (Snowdon and Thow 2013). The policy of free trade has proved to be beneficial in increasing the efficiency of the firms by cutting costs to incentives. The adoption of free trade policy in Australia has prevented domestic monopolies from charging higher prices on the products and services.

The trade policy has created favorable impact in exchanging raw materials for the development of industries (Hall et al. 2015). In case of Australia, the adoption of free trade policies has provided favorable conditions in exchanging raw material for the industrial benefit (McLachlan 2013). It has opened opportunities in Australia for gaining mutual welfare. With the system of uneven distribution of raw materials in nations has been a source of creating international tension however with the adoption of free trade policy in Australia , the country has been beneficial in gaining from trade (Malik et al. 2014).

Free trade policy has proved to be beneficial in modifying an intra-industry trade structure. With the introduction of intra-trade structure in Australia it has been able to gain more benefits from international trade by involving larger markets (Gereffi and Sturgeon 2013). By adopting the policy of free trade Australia has been able to take advantages of the efficiencies which have been circulated as a result of the generation of economies of large scale production and increased output (Francois and Pindyuk 2013). In order to increase the size of the firm’s market in Australia, free trade policy has proved to be beneficial as it helped in increasing the size of the firm’s market structure resulting in increased productivity (Gereffi and Sturgeon 2013).

In this regard the negative impacts of trade policy can be emphasized. In an economy like Australia with the establishment of free trade policy and trade liberalization, there have been few drawbacks as well. With the introduction of free trade policies in Australia, the domestic firms have faced vast competition from the foreign firms (Cooper and Riezman 2013). However, Australia in order to meet the growing competition has lowered the prices of the products in order to defend their market shares and retaining sales. With the development of free trade policy in Australia, there has been difficulty in developing new industries (Bown and Crowley 2014). In Australia there already existed a competitive environment and therefore development of new industries has been difficult (Antràs and Yeaple 2013). The government of Australia has not adopted any short-term protection policies in order to promote development of new industries in the country.   

Positive Impacts of Trade Policy on Industrial Development

In figure 1, it has been shown that the volume of merchandise imports and exports has increased overtime along with the average tariff rate. With the increase in trade there was a gradual decline in tariffs. The motive is to increase the integration of Australian economy.

It can be observed that with the development of trade policy in Australia it gave rise to unfair competition between various industries. In Australia, with the increase in the competition levels among the national markets, industries have taken few unfair steps in discovering and evaluating the plan of the competitive markets (Barro 2013). The owners of corporate intellectual properties have lost their financial charge sheets, data, sales records and even brand reputations. With an increase in competition industries in Australia have lowered the quality of industrial products in order to meet the market demands. Australia has opened markets in order to attract production of the third countries and in this regard doubts have been created in the minds of the consumers regarding the quality of the product (Borchert, Gootiiz and Mattoo 2013). Australia being an open economy however focused on increasing the quality and standard of the industrial products.  In order to protect the domestic market of Australia higher quality of products has been introduced by the industries. 

Since time immemorial trade policies have proved to be beneficial in generating the employment culture of a country. Modern economists have emphasized on the fact that trade policies has played a vital role in uplifting job creation and poverty alleviation in a country (Dorn and Hanson 2015). In case of Australia, the free trade policies from the very beginning aimed at enhancing the rate of competitiveness among countries by increasing exports. In order to generate employment opportunities in Australia, the free trade policies helped in breaking into the global chains with an objective to enhance employment opportunities by replacing imports (Fooks and Gilmore 2014).

In order to achieve sustainable development in production and distribution of income among the nationals of the country, the adoption of free trade policy has proved to be beneficial. In Australia, addressing the inequalities in income and employment has become a vital issue. However the country took various measures in this regard in order to increase the employment conditions. With the industrial development, there has been a demand for high skilled workers however the workers were reluctant to work on low wages. Australia being a developed country however put emphasis on increasing the wage off high skilled workers (Francois and Pindyuk 2013). However, in the modern era due to recent change in technology, there has been vast development in technological structure of every developed country. It has been observed that technological development took place steadily in Australia with the introduction of skill based technologies. With the introduction of new technologies, the demand for high skilled workers has lowered considerably and due to this reason there has been a decline in the employment culture of Australia.

Negative Impacts of Trade Policy on Industrial Development

It can be observed that free trade policy had positive impact on generating the employment conditions in Australia. It is noteworthy to state that with an increase in imports there has been considerable reduction in employment as well. By restricting the policy of protectionism which creates barriers in trade; structural employment can be generated in the short term (Francois and Pindyuk 2013). In Australia with rapid development in growth industries, it has been difficult for the workers to find their way into these industries. However the Australian government initiated necessary steps in providing assistance to such workers in getting employed (Downes, Hanslow and Tulip 2014). It has been observed that in Australia, there has been rise in employment opportunities in exporting industries. The workers have been displaced due to the closure of import competing industries in a competitive market. It has been observed that due to fall in prices in Australia, the purchasing power of the consumers have increased in various sectors which lead to job creations.

Trade  related employment (1998-99)	Trade  related employment (1998-99)	Share of total employed	Trade  related employment (2015-16)	Share of total employed
Mining	185.2	47	182.4	53
Manufacturing	64.3	84	176.6	70
Agriculture	406.7	40	366.7	42
Services	625.2	2	820.4	7
Total Exports	1.297.3	17	1588.9	16
Imports	657.1	10	673.5	5
Total Trade	1.946.2	25	237.2.1	20

Table 2: [Employment rates in Australia in relation to International trade].

Source: [Created by the Author].

In Table 2, it has been shown that among all the people employed in export-related industries, the maximum number were employed in the service industries.

Free trade policy has some negative effects as well. It can be observed that in recent trends, the manufacturing employment in Australia has suffered a major drawback. In Australia, manufacturing employment has declined to a great extent in absolute and relative terms over the past years. The manufacturing industries of Australia since time immemorial has been generating the employment of at least more than 1.5 million people in 1971. However, recently the rate of manufacturing employed has reduced considerably and fell to 910,000 people. However, it has been observed that in spite of the decline in manufacturing employment; the total employment opportunities of the country doubled.  

The trade theory laid emphasis on the part that in order to gain long term employment it is essential to rely upon the overall level (Kee, Neagu and Nicita 2013). However in modern world there is difference between the theory and reality. The liberalization of trade is associated with an increase in employment rates however in Australia with an increase in trade liberalization there has been considerable decline in employment rates (Rahman and Mamun 2016). From the dynamic trade theory it has been drawn that workers have largely benefited from the dynamic effects of trade policy. In Australia there has been increase in employment rates as workers are being employed in export oriented firms and sectors. With the reallocation of productive resources and market shares in Australia, the employment rates have increased. The reallocation of workers in Australia actually took place within industries rather than between industries (Snowdon and Thow 2013). This could have been possible due to the presence of heterogeneous employees in each sector of the firms. In Australia, the exporting industries proved to be more productive in employed high skilled labors with higher wage payment.   

Conclusion:

In the conclusion it can be stated that the concept of free trade policy since time immemorial has been able to attract trade facilities between various nations. The protectionism on trade however created limited access to trade opportunities. It created the barriers to trade which created negative impact in the economic development of various countries. In case of Australia, it can be observed that with the adoption of free trade policy its economic development has increased considerably however there have been fluctuations in the employment rates. With the development of industries in Australia there has been huge development in the industrial sector which increased employment opportunities in the long run.

It is noteworthy to mention here that at present there are six Free Trade Agreements with Australia with the other nations which are in force. Legally binding commitments are contained in the Free Trade Agreements which has been provided by each member for the purpose of liberalizing access to the markets. It can be observed that trade policy acted as a powerful force in making constructive developments for the benefit of the country. However trade policies have been associated with various uncertainties and obligations. In order to create liberalization of trade policies there has been many drawbacks however it is important to overcome such drawbacks as much as possible. The most significant impact of trade liberalization on the economic, industrial and employment conditions of Australia has been revealed in this regard. In Australia due to the presence of open markets access and creation of new trade opportunities it has lead to faster economic growth which served as the main purpose. Trade policy in Australia created favorable conditions for business start up and development with the inclusion of additional investments. Lastly it can be stated that there is a need for further development of trade policies in Australia in order to maintain trade balance. This could be attained if there is further encouragement in forming bilateral trade agreements. 

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