Trade liberalisation involves one or more countries agreeing to lower import tariffs and relaxing import quotas and other forms of protectionism.
One of the aims of liberalisation is to make an economy more open to trade and investment so that it can engage more directly in the regional and global economy.
Are there good recent examples of trade liberalisation?
The UK has signed free trade deals with Australia, New Zealand and Singapore among others having left the European Union single market
The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement among the Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. RCEP eliminates import tariffs on about 90 percent of traded goods and standardizes many customs, investment, IP and e-commerce regulations.
The African Continental Free Trade Agreement, creates a single market of 1.3bn people and liberalizes over 90 per cent of intra-Africa tariffs
A lot of trade liberalisation happens at a regional rather than a global level. For example, the Regional Comprehensive Economic Partnership (RCEP) which includes 15 East Asian and Pacific nations of different economic sizes and stages of development.
How can we show the impact of trade liberalisation using an analysis diagram?
Evaluate the impact of trade liberalisation on economic welfare
Possible gains in welfare:
Potential drawbacks from trade liberalisation
Trade liberalisation can have micro and macroeconomic effects. The impact depends on the scale of tariff reductions and the flexibility of domestic businesses to respond to changing relative prices including lower prices for imports.
The impact of trade liberalisation can be different for advanced (developed) high income countries contrasted with low-income nations. Build this into your evaluation.
How can the concepts of trade creation and trade diversion be applied to this topic?
Trade liberalisation is an important growth and development strategy for many countries. For trade agreements to occur they should result in mutual gains for the countries involved – in other words, there should be net economic welfare gains and a stronger macroeconomic performance.
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