International Trade Revision

International Trade?

Australia’s international transactions involve the buying of imports of goods and services from overseas, and the selling of exports of goods and services abroad.

Tariffs & their impact?

Taxes imposed on imported goods e.g. Tariffs of 10% on cars or wine.

• Tariffs can be used to exert political or economic influence on other countries; they can pressure countries to lower their tariffs or open their economy to imported goods and services.

• Can raise revenue for the government; this revenue can be used to help businesses grow, hire more workers, and more economic activity being generated for the local economy.

• Tariffs can protect local identity & culture; they can ensure that loved products are produced in their country of origin and that local art, drama, and media retains an audience in its country.

• Tariffs encourage consumers to purchase local goods and services instead of those from overseas as they have become more expensive to purchase.

• Gives local producers the opportunity to make more sales and increase their profit since consumers will purchase from them instead of overseas.

• Allows governments to obtain more revenue from taxes, which means they can spend more on infrastructure, public services, and boost the economy.

Types of Tariffs?

• Specific Tariffs: A fixed fee on a product regardless of its price.

• Ad-Valorum Tariffs: A percentage-based tariff, where the fee is based on the percentage of the product’s price.

• Reciprocal Tariffs: Refers to when a business imposes tariffs on products from a certain country that has previously imposed tariffs on products from their own country as retaliation.

Quota?

A limit on the quantity of goods that can be imported into a country e.g. limiting how much gas, oil, or alcohol that is allowed into the country.

Subsidies?

Financial support provided by the government to domestic producers to lower production costs and make their goods more competitive in the domestic and international markets e.g. subsidies for public transport or electric vehicles.

Advantages of Free Trade?

• Encourages international specialisation; | Absolute Advantage: Where one country is the cheapest and most efficient producer of a good (e.g. cars, iron ore) Comparative Advantage: Where countries produce the goods that they are most efficient at producing or where their cost disadvantage is relatively least and trade these goods for goods from other countries that they are bad at producing or cannot produce.

• Increases economic growth & GDP

• Grows employment & jobs

• Results in higher incomes

• Lowers the inflation rate

• Increases consumer choice

Disadvantages of Free Trade?

1. Limits the growth of infant industries

2. Weakens Australia’s national defence

3. Australia may be impacted by events in other countries

4. Causes structural unemployment & destroys jobs

Benefits of Trade & Capital Flows on Living Standards?

• Creates employment, meaning more people can earn an income and their living standards will increase

• Provides more choice of goods and services for consumers

• Increases economic growth and GDP as AD increases

• Lowers the inflation rate, meaning purchasing power is higher

• Promotes investment; increased investment will result in less inflation

• Through investment, consumers can save money and have more money to purchase goods and services, as well as gaining the opportunity to grow their wealth in general