What impact would a large increase in the availability of cheap imported goods have on the goods and services sold in Australian business?
Globalization has resulted in greater interconnectivity between countries and the creation of more cross-border trading relationships between neighboring countries. The effects of globalization on countries caused by the increased availability of cheap imports have been both negative and positive for the exporting country and the country receiving the imports.
a) Exporting countries: The producers in the country exporting the goods and services experience economies of scale as they offer their products to a wider customer base on the international market (or in this case, Australian market. Therefore, greater production by producers enables firms to benefit from specialization which increases their comparative advantage in producing those goods.
b) The countries receiving the imports (Australia): Due to their large market power, monopolies tend to produce goods inefficiently and sell goods and services at high prices. Therefore, if monopolies existed in the receiving country, the importation of cheap goods would give monopolies more competition and decrease the market power of these existing monopolies. Customers would subsequently benefit from greater market efficiency and lower market prices for these products.
a) Exporting countries: The exportation of cheap imports may place a strain on the resources of the country. Additionally, the countries' exporting industries might have to adjust their product quality standards and procedures to suit the specifications of the receiving country in order to have their products accepted into that country. These adjustments might increase the production costs of the exporting industries.
b) The countries receiving the imports (Australia): The infant and developing industries in the receiving country might not be able to competitively compete with cheap imports without government assistance. This is because they do not have the experience or the resources to offer prices similar to the cheap imports. Subsequently, the firms in these industries either go out of business or develop a greater reliance on government subsidies in order to compete with the cheap imports on the market. If these industries shut down, the country will become more dependent on cheap imports. This will result in the development of balance of payment deficits, reduced national food security, and greater development of the consumption-related industry rather than the manufacturing sector.