Discuss the impact of free trade and protection policies on individuals,

firms and the government in Australia.

In the increasingly globalised world economy, Australia has undergone policy reforms by reducing
protection and progressing towards the goal of trade liberalisation. Despite these steps taken,
Australia continues to engage in protectionist policies to a certain extent. This dual involvement is
reflective of Australia’s engagement in the multilateral ASEAN free trade agreement and
deteriorating relationship with China as an economic partner, both which epitomise the positive and
negative effects of free trade and protection on Australian individuals, firms and governments.

The impacts of free trade on individuals, firms and governments in Australia are evident in the
positive and negative implications of the AUS-ASEAN free trade agreement. The ASEAN free trade
agreement has achieved free flow of goods and labour in the region through deep economic
linkages. According to David Ricardo’s theory of free trade, the ASEAN economies are able to
operate at their comparative advantages, allowing the cheapest and highest quality of goods to be
traded across borders. Derived from these comparative advantages are the top ASEAN imports
including agricultural produce, textiles (valued at $13 billion) machinery and electronic technologies
(valued at $24 billion). Hence, Australian consumers gain access to cheap imported goods, satisfying
aggregate demand and fuelling economic growth. More so, Australian firms experience reduced
costs of imported intermediate capital goods by 20% in the past decade (IGC). This allows the
production of higher value goods and lower operation costs, which transfers to lower domestic costs
and reduces individual cost of living. Hence, free trade enables both individuals and firms to
experience the benefits of cheap imports. However, free trade also creates negative implications on
individuals through structural unemployment as there is an increased access to cheaper, more
specialised and efficient labour markets. For example, as Singapore specialises in ICT and Business
processing services, Australian firms have been more inclined to outsource their services due to the
high quality of skills available. Furthermore, free trade is beneficial to Australian firms as it
encourages greater export volumes and stimulates greater industrial efficiency. The ASEAN trade
organisation aims to, “make ASEAN countries more competitive in trade and investment over the
next ten years”. This is evident in the growth of the tourism industry throughout ASEAN economies,
which pressures the Australian tourism industry to increase its quality and efficiency in order to
remain internationally competitive, further improving productivity and economic growth. Whilst
competition and deregulation can cause Australian industries such as manufacturing industries to be
outcompeted by emerging asian economies, allocative efficiency of Australian resources are
promoted and beneficial. Additionally, the ASEAN Trade in Goods Agreement (ATIGA) involved the
elimination of intra-ASEAN import duties on 99.96% of their tariff lines (The ASEAN org). Thus,
export volumes and revenue can be maximised for Australian firms, hence facilitating the growth of
these domestic industries. Furthermore, the advantageous effects of free trade of firms extends to
the implications on the Australian government as increased export credits increase company tax
collected by the government to help fund fiscal expenditure. On the other hand, the ASEAN FTA is
evidence of the advantageous impacts of free trade that support the livelihood of individuals and
growth of Australian firms. 

The impacts of protectionist policies on individuals, firms and government in Australia are evident by
the retaliatory use of protection by both Australia and China amidst the recent AUS-China trade
tensions. Initially the negative impacts of protection are evident in the trade war, in which China
placed tariffs on Australian goods. This initially had immense negative implications of Australian
firms, including wine producers who were struggling against a 200% tariff on wine, reducing their
capacity to export as China was the major export market for Australian wine, accounting for 39% of
wine exports (ABC). The negative impacts of tariffs are evident in Diagram 1.1 (China Wine Market
Graph), which shows the increase from price D to price A, as
the addition of a tariff causing JM the supply of Australian wine
to decrease to KL. This decline reveals how protection subjects
Australia to lower export volumes and thus less export
revenue, consequently forcing the industry to produce and
employ less Australian individuals in the short term. With
increased unemployment and wages, individuals experience a
decline in their disposable income, restricting their ability to
satisfy their needs and wants. The need for Australia to
maintain protectionist policies to some extent is made evident
by DFTA’s Jennifer Gordon who highlights the risks of Australia being a highly reliant export
economy, as she states that, “Unfortunately, we haven’t been able to divert as much wine to the
rest of the world, so there is a net cost to the wine industry.” Moreover, Australia has recently
dismissed China’s Belt and Road initiative. As a result of increased protectionism between the two
countries, Australia has forfeited the potential benefits of engaging in the liberalising initiative which
expects that “Australian exporters could benefit from plans to import US$2t of products and services
from participating countries over the next five years,”(export finance australia) for consumption by
individuals and Australian firms. Australia’s disengagement means that they cannot benefit from
China’s FDI into Australia and infrastructure spending which beneficially drives employment
opportunities and regional incomes for individuals. However, the BRI is projected to “increase the
participation of Chinese infrastructure companies in Victoria's infrastructure construction program.”
Thus the government’s protection against this ensures that Chinese investors do not gain increased
control of market share against Victorian industries, hence their inability to compete. This was also
seen when Australia had restricted Chinese telecommunications giant Huawei from participation in
the construction of 5G mobile telecommunications networks because of concerns of those networks
being monitored by the Chinese government. Whilst protectionism allows the government to uphold
national defence and security, it has tended to increase political, rather than economic, tensions
between nations. Therefore, the trade war and Australia’s use of protectionist policies to retaliate
against China highlight the predominantly negative implication of protection on individuals, firms
and governments in Australia. 

Both positive and negative implications arise from policies of free trade and protectionism,
represented by the ASEAN FTA and China-Aus trade tension which have highlighted these effects on
Australian individuals, firms and governments.