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Release of Report Showing the Benefits of Trade and Trade Liberalisation
On 1 June 2009, Australian Minister for Trade, Mr Simon Crean, MP, released a new study on the Benefits of Trade and Trade Liberalisation prepared for DFAT by the Centre for International Economics (CIE). The study provides economic analysis of the Australian economy to assist in public advocacy against trade-related protectionism. This study follows on from DFAT research in 1997, published as "Trade Liberalisation: Opportunities for Australia", which tracked the benefits of trade liberalisation over the previous decade. This study extends the analysis to over 20 years.
The study shows that Australia's approach to trade liberalisation over the past two decades has delivered substantial benefits to national prosperity, individual incomes of Australians and employment. The study used four econometric models to measure the impact on the economy of lower tariffs, lower import quotas and other trade-related restrictions, and averaged the findings.
- The results indicate a contribution to GDP of 2.5-3.5 per cent from trade liberalisation over the period.
- This equates to an increase in Gross National Income of around 1.8 per cent, which in turn implies an increase in real income of approximately A$2,700 per annum for the average working family (defined as a working couple with children using ABS data).
- When dynamic productivity and employment effects are included, the rise in real income is around A$3,900 per annum per average working family.
- The modelling results are in line with similar positive results found internationally.
The study finds that the manufacturing sector has also become more resilient and export-focussed as a result of trade liberalisation. The negative impacts of the tariff reductions on import-competing sectors were offset by the positive benefits on exports. As protection was reduced for manufacturing through the 1980s and 90s, exports rose as a percentage of GDP. This was particularly evident in sectors producing elaborately transformed goods. The trend in manufacturing towards capital intensive and export-oriented goods resulted in changes to manufacturing employment, with a 60 per cent increase in skilled and managerial positions and a 15 per cent decrease in manual and production workers. Overall, the average real wage increased 6 per cent since 1988 or roughly A$3,000 per worker.
The CIE report also tackles the "common misconception in popular discussions of trade that Australian jobs are being exported to countries such as China and India." It finds that employment depends on the overall level of demand in the economy, not the level of imports or exports. By examining ABS input-output tables for 2006-07 (latest available), the study finds that one in five Australian jobs are related to trade. It finds that 13 per cent of jobs (1 in 7) are related to production of exports, and 10 per cent to the shipping, distribution and retail of imports (1 in 10) - a total of over 23 per cent (more than 1 in 5). This finding confirms previous research showing the importance of trade to Australian employment.
The study provides evidence that a resort to protectionist policies would damage the global economy and delay recovery. It recognised that the threat of increased protectionism comes from the desire of national governments to protect jobs in their own economy, even if that is at the expense of jobs in other countries (the "beggar thy neighbour" approach).
The CIE ran a model that sought to measure the impact of a modest 10 per cent increase in average global tariffs (given the relatively low average tariff levels today, most of the average tariff increases were of the order of 0.5-1 percentage points.) The impact for selected countries/regions are set out in chart 3.1 of the report but overall it was estimated that global GDP would be some 0.2 per cent lower - a contraction of over A$110 billion, with the loss in global welfare (household consumption) being some A$84 billion. Countries whose economies are more heavily trade oriented (particularly Asia-Pacific economies) would be more seriously affected by even a small rise in global protectionism.
This is a very timely publication given the current global crisis and the threat of regressive protectionist policies.
For other trade and publications, visit the Department of Foreign Affairs and Trade Trade and Economic Data and Publications page.