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Positives of Trade Liberation

Economics (Year 12) - Free Trade and Protection

Christian Bien

Positive #1: Trade Allows Consumption to be Greater than Production

The law of comparative advantage states that when countries compete in trade, all participants will be able to consume more resources. By specialisation, nations can expand their consumption possibilities.

Think about all the products you can buy today, how many of them are produced overseas?

  • Toyota Car - Japan

  • IKEA Meatballs - Sweeden

  • Apple iPhone - China

  • Nike Shoes - Vietnam

Positive #2: Importing Goods and Services Lowers Inflation

Countries only import when the world price is lower than the domestic price. By importing, households have access to lower-priced goods and services with no or minor changes in quality.

A country's comparative advantage in production will ensure lower-cost goods and services for the world market.

Positive #3: Importing Goods or Services Increases the Variety of Goods and Services Accessible by Households

There are limitations to what goods and services countries can produce. Through trade, households can access goods and services that cannot be produced in Australia or is too costly to produce.

Positive #4: Trade Increases Real Income and Living Standards

The fast period of world economic growth was during periods of high world trade growth. Australia's GDP rose substantially due to radically trade reforms equating to increases in real incomes. In addition, trade allows for a higher consumption of resources, increasing living standards.

China's GDP Per Capita (1960 - Current)

Trade's role in increasing living standards can be seen evidently in China, where in 1978, China began a series of trade reforms to open the country to trade and commerce. Now China has one of the largest economies in the world.

Positive #5: Trade Increases Competition and Resource Efficiency

Trade forces domestic producers to be more efficient or change production. Trade forces inefficient resources to join expanding sectors of the economy. Although this creates structural change and unemployment in the short term, this is outweighed by gains in long-term output and employment.

Positive #6: Trade Creates More Higher Paying Job Opportunities

Trade creates more new and higher-paying jobs. Trade has forced the structural change in Australia's economy from a manufacturing country to resources and services-based economy. Jobs in resources and services industries provide higher incomes in contrast to manufacturing.

No greater example can be shown by mining, where trade stimulates global demand for commodities, resulting in high-paying mining jobs of over $100k per year.

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