Australia has 'concluded a free trade deal with Japan' and will sign another one with South Korea in the next two days. This is an important step forward, but isn't properly free trade.
In the eighteenth century Adam Smith, and in the nineteenth David Ricardo, showed that everybody gains from free trade. Economists have accepted this ever since. It is therefore astounding that any country retains barriers to trade in the twentyfirst century. However some do and so do Australia and Japan after this deal.
There is abolition of tariffs on some goods. Cars from Japan to Australia, for example, will fall from a 5% tariff to zero. But not necessarily all at once. Other tariffs are merely reduced, such as the tariff on beef from Australia to Japan, which was an eyewateringly high 38.5% will be halved. A 19.5% tax is still huge as a barrier to trade.
Tariffs are not the only barrier to trade. Quota's used to be a popular way to reduce trade and the new deal allows an additional 20,000 tonnes of Australian cheese to be exported to Japan. Another popular barrier to trade is to extol the benefits of local products. Australia is a master of this is their 'Australian owned' or 'Australian made' propaganda.
The simple fact of the matter is that all trade barriers harm the standard of living of countries. What protection (or economic nationalism as it is often called today) does is raise the prices paid by consumers and protects inefficient domestic producers from competition. Competition forces down costs and promotes allocative and technical (productive) efficiency.
Australia suffers more than most developed countries from the protectionist fallacy. People buy into the idea that local jobs are 'saved' by it. All protection can do is delay the inevitable and, usually, when the trade barriers are removed the domestic industry is so hopelessly inefficient it closes. Ask Ford, Holden and Toyota if you need proof of this.
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