Appl Ex 8n

Application Exercise 8n: Winners and losers from trade protection 

  1. Explain why the Productivity Commission (PC) is concerned by many forms of ‘trade assistance’ provided by governments.

The PC is concerned that although some businesses (those that benefit from trade assistance) are better off, it actually imposes costs elsewhere. These costs include that subsidies must be funded – through tax revenue or debt or the opportunity cost of not spending government revenue on something else more beneficial. Tariffs increase the input costs of local producers who use imported inputs that attract tariffs. And regulations can restrict efficiency or create barriers to entry for certain markets.


  1. Explain the difference between tariffs and subsidy assistance to industries.

A tariff is a tax on imports. This increases the relative price of the import. Whereas a subsidy is a payment of some form to a business to encourage them to increase output by reducing the cost of production.


  1. Describe what happened to trade assistance to Australian industry over 2020-21 according to the PC report.

Over 2020-21, trade assistance increased significantly. They measure net assistance across all sectors (including tariffs, subsidies and subtracting any tariffs the sector pays on its inputs) – which amounted to $16.2 billion. This was mostly due to the ‘extraordinary’ circumstances of COVID-19 pandemic and support of particular industries.


  1. Explain whether most assistance comes in the form of tariffs or other industry support. Provide evidence to support your answer.

Most assistance comes in the form of subsidies to particular industries, rather than tariffs on imports. According to the chart, less than $3 billion was received in tariff assistance  paid in tariffs over the period, yet a total of more than $16 billion was provided in assistance.


  1. Explain which Australian industries still receive tariff assistance.

Industries that still receive tariff assistance include the passenger motor vehicle industry (PMVs) and textile, clothing and footwear manufacturers, which are still protected by tariffs of 5%.


  1. Use data from the chart provided to describe which industries receive the most assistance and the least assistance from tariffs.

According to the chart, the net tariff assistance to agriculture was about $300 million, and the net tariff assistance to manufacturing was around $1300 million ($1.3 billion). Services receives no tariff assistance and in fact is penalised to the tune of nearly a billion dollars a year. The chart shows that the greatest beneficiaries from tariffs in Australia are manufacturers, and that service providers in Australia are the industry most harmed by tariffs.