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Yes 24601, tax cuts involve lower government revenue, but the point is that the proceeds of this tax cut goes to Americans - not Australians! So it is not a tax cut for us and when the subsequent politics plays out, we will probably find other taxes on Australians increased. That is something to lose sleep over. You're right that there is an issue of whether trade diversion or trade creation dominates, but the studies I've seen reported lately suggests that most FTAs have been more trade diverting. As for the US FTA, I thought different studies had given conflicting results, although I have not looked closely at any of them and so cannot comment on the reasons for the differences or which is more convincing. But whatever the differences in the studies might be, I do know that most of these types of studies are based on some fairly general assumptions about efficiencies from trade when, when it comes to most bilateral deals, the devil is really in the detail - look at the rules of origin for NAFTA for example and try to realistically model that! The US FTA is still being negotiated, so there is no real way to know whether we will gain or be shafted from it, or how much trade it will create relative to how much it will divert. As for your political economy point, some countries might be enticed to join in, but there is also the risk of trade blocs forming and of retaliation, so the outcome is not clear-cut. One thing we do agree on however is that unilaterally reducing trade barriers is a smart way to go.
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