Also, can anyone please answer this. 'Explain how the provision of subsidies as a form of protection has been discredited. In your answer, refer to both the short and long term.
Thanks again.
This question is kinda tied in with Unit 3 aos 3. Overall, protection of the economy is usually considered bad in the long run. This is because
even though protection can have short-term benefits for some groups, it tends to result in negative outcomes for the economy in the longer term.
-This is because higher levels of protection reduce competition for local import competing producers and result in less pressure to minimise costs and prices
-There is also less incentive to improve efficiency and performance and tariffs also work to act as a tax on other Australian industries
-Over time, foreign producers tend to become relatively more efficient as they are exposed to greater competitive pressures; they can then reduce prices and gain a foothold in the Australian market, and Australian firms will then ask for an increase in tariffs to ‘protect Australian jobs’
-This process becomes destructive as inefficiency of local producers becomes entrenched, raising the cost structure of the Australian economy and increasing the likelihood that foreign governments will retaliate and protect their local producers from those Australian exporters that have a comparative advantage (eg mining).
However, subsidies are still offered in some forms such as the export development grants as I mentioned a few replies ago.