On December 20, 2015, China-Australia Free Trade Agreement (ChAFTA) was signed, which aimed to reduce and eliminate tariffs between China and Australia over the next decade. This trade agreement is expected to have significant economic impacts for both countries, as it will increase trade and investment opportunities. However, a general equilibrium analysis of the agreement shows that it will have both positive and negative impacts on the economy.
One of the most significant benefits of the agreement is that it will increase bilateral trade between China and Australia. According to a report by the Australian Government, by 2035, Australia`s exports to China are likely to increase by up to 37 percent, including significant increases in agriculture, resources, and services sectors. This increase in exports will provide a significant boost to the Australian economy and help create more jobs.
However, the increased competition from Chinese imports is likely to have impacts on certain sectors of the Australian economy. The automotive, textile, clothing, and footwear industries, for example, are likely to face increased competition from cheap Chinese imports, which could lead to job losses in these sectors.
Another area of concern is the potential environmental impacts of increased trade with China. China is one of the world`s largest polluters, and increased trade could lead to an increase in greenhouse gas emissions and other environmental concerns. Furthermore, the agreement does not include any specific environmental or labor protections, which could lead to exploitation of labor and environmental degradation.
The agreement also aims to increase investment opportunities between China and Australia, primarily in the services and infrastructure sectors. Increased investment could provide significant economic benefits, but it may also lead to concerns about foreign ownership, particularly in strategic industries such as agriculture and resources.
The ChAFTA agreement is likely to have significant impacts on the Australian economy, both positive and negative. It will provide increased access to the Chinese market, resulting in increased export opportunities, job creation, and economic growth. However, it may also lead to increased competition for certain sectors, environmental concerns, and foreign ownership concerns. Despite these concerns, the ChAFTA is an essential step in building closer economic ties between China and Australia.