In The Conversation last week (30th April) two lecturers from Monash University, Giovanni Di Lieto, lecturer of international trade law at Monash Business School, and David Treisman, lecturer in Economics, Bachelor of International Business at Monash Business School, asserted that small businesses need to be able to see how trading internationally will contribute to their bottom line.
Politicians often cite the large market value of exports as justification for free trade agreements. But Treisman and Di Lieto say this misses a fundamental point about trade – we benefit most when we focus on exporting the goods and services we are the most efficient at producing, rather than simply increasing the absolute value of our exports.
To the ordinary, hard-working Australian small and medium business owner, not engaged in special interest politics, the questions of “how many eligible exports are covered by a free trade agreement?†are secondary considerations.
In other words, the best use of international trade is not touting banalities like “this free trade agreement is worth such and suchâ€. Rather, it is by calculating in what sectors, and in what markets, Australian enterprises actually gain or lose from international trade.
It is a firm’s productivity, not the market value of its exports, that signals success in international trade. In this regard, Australian small and medium-sized businesses have demonstrated considerable longevity and importance – yet these businesses account for less than 5% of our total exports.
In economics, the answer is found within the concept of comparative advantage. This says that a business will gain from international trade if it focuses its efforts on exporting a good or service that it produces more efficiently than its competitors. This has been shown to be best achieved through government policies that encourage foreign direct investment abroad, integration of value chains, and domestic regulations that support greater, not lesser, international trade.
Of greater immediate concern for Australia’s small and medium businesses is the fallout from a trade war between our major trading partners.
Public policies should analyse free trade agreements in terms of their contribution to the actual productivity of enterprises by sector, rather than the potential to expand the total market value of exports. With transparent information, based on substantial economic evidence, governments could at last find political legitimacy to implement systemic trade adjustment measures. This would reallocate resources within and between sectors, from large to small and medium export-oriented businesses.
Source: The Conversation
https://theconversation.com/australia-cant-afford-to-forget-smaller-businesses-when-negotiating-trade-deals-92677
https://theconversation.com/why-kickstarting-small-business-exports-could-boost-stagnant-wages-95640
