commerce global trade

Comparative advantage

The ability to produce a good or service at a lower opportunity cost than another country.

Why countries trade

Countries trade because they can access goods that would be more difficult or expensive to produce themselves, benefiting both trading partners.

Technology enabling global trade

Advances in transportation, communication, information technology, and online payment systems have made trade faster, cheaper, and easier.

Iron ore

Australia's largest export; used to make steel for buildings, bridges, cars, trucks, trains, ships, machinery, and infrastructure.

Refined petroleum products

Australia's largest import (around $46.8b); needed for energy needs not met by local production.

Benefits of trade

Increased income for exporters, increased choice for households, better prices and quality through competition.

Costs of trade

Local businesses may not compete and lose jobs/profit; increased reliance on overseas countries which is risky in a crisis.

Trade and GDP growth

Rising exports can drive business expansion and job creation; rising imports increase competition and can lower inflation.

Balance of Payments

A record of all economic transactions between a country's residents and the rest of the world over a specific period of time.

Current Account

Measures the net flow of money into and out of a country from trade in goods/services, income, and transfers.

Capital and Financial Accounts

Measure investment flows and the buying/selling of assets between a country and the rest of the world.

Australia's trading partners over time

Have shifted significantly, historically dominated by the UK, now with China as the largest trading partner, alongside Japan, the US, and South Korea.

Tariff

A tax imposed on imported goods, making them more expensive relative to domestic goods.

Who benefits from a tariff

Domestic producers who compete with the imported good, since local products become comparatively cheaper.

Who is negatively impacted by a tariff

Consumers, who pay higher prices, and foreign exporters, who lose competitiveness in that market.

Other economic impacts of tariffs

Can trigger retaliatory tariffs from other countries, raise costs for local businesses using imported inputs, and reduce overall trade volume.

Free Trade Agreement (FTA)

An agreement between two or more countries to reduce or remove barriers to trade, such as tariffs and quotas.

How Australia benefits from FTAs

Increased market access for exporters, lower prices for imported goods, and greater choice for consumers.

Who is negatively impacted by FTAs

Domestic industries that cannot compete with cheaper imports once barriers are removed.

Quota

A limit on the quantity of a good that can be imported into a country.

Exchange rate

The value of one currency when compared to and traded for another country's currency.

What causes exchange rates to change

Changes in demand and supply for a currency, driven by interest rates, inflation, economic conditions, trade, and investor confidence.

Causes of currency appreciation

Higher interest rates attracting foreign investors, and strong demand for a country's exports.

Causes of currency depreciation

Lower interest rates and weaker demand for a country's exports.

Effect of a stronger AUD on Australians

Australians can buy more with each dollar when purchasing overseas goods or travelling.

Effect of a weaker AUD on Australians

Australians pay more for imported products, as more AUD is needed to buy the same amount of foreign currency.

Purchasing Power Parity (PPP)

The theory that exchange rates should adjust so an identical good costs the same in different countries once converted to a common currency.

Big Mac Index

A tool that compares the price of a Big Mac across countries in a common currency to estimate whether currencies are over- or under-valued.

Profiting from PPP imbalance

A business could theoretically buy a good cheaply in a country where its currency is undervalued and sell it in a country where the equivalent good is priced higher.

Globalisation

The increasing economic, cultural, and political integration and interdependence of countries around the world.

Palm oil (ethical issue)

Environmental issue linked to deforestation and habitat destruction in producing countries for use in food and cosmetic products.

Unsafe clothing factories (ethical issue)

Exploitation of workers through poor pay and dangerous working conditions in garment manufacturing, often in developing countries.

Conflict diamonds (ethical issue)

Exploitation tied to diamonds mined in war zones and sold to finance armed conflict, exploiting local communities and cultures.

Chocolate manufacturing (ethical issue)

Exploitation of workers (including child labour) and environmental damage linked to cocoa farming in producing countries.

Tea estates (ethical issue)

Exploitation of workers through unfair employment practices and low wages on tea plantations, notably in Sri Lanka.

Australia's central bank raises interest rates sharply

The AUD would likely appreciate, since higher rates attract foreign investors seeking better returns.

The AUD depreciates

Imported goods and overseas travel become more expensive for Australians.

The government places a tariff on imported cars

Domestic car manufacturers benefit most, since imported cars become more expensive by comparison.

China's economy slows and buys less Australian iron ore

Australia's GDP growth could slow and mining-related unemployment could rise.

A Big Mac costs $5 AUD in Australia but the equivalent of $7 AUD in the US

Under PPP theory, this suggests the AUD may be undervalued.

A clothing brand sources garments from unsafe, low-wage factories overseas

This represents worker exploitation in a global supply chain.

Australia signs a Free Trade Agreement with a trading partner

Tariffs and quotas between the two countries are reduced, generally increasing trade volume and lowering prices for consumers.

A country's exports fall while imports rise

The current account balance worsens, which can put downward pressure on the currency's value.

The US imposes tariffs on Canadian and Mexican goods

Prices for consumers in the US may rise, domestic US producers are protected, and Canada/Mexico's export industries are negatively affected.

A country wants to limit trade with another country

It can impose tariffs, quotas, or trade regulations/restrictions to make imports less attractive.

A country wants to encourage more trade with another country

It can negotiate a Free Trade Agreement to lower or remove tariffs and other barriers.

A chocolate company is criticised for sourcing cocoa linked to child labour

This illustrates the ethical cost of global supply chains, where cheaper production can come at the expense of worker welfare.