Flat White

Australian free trade must trump protectionism

12 March 2018

6:40 PM

12 March 2018

6:40 PM

With the Trump administration pledging to impose tariffs on aluminium and steel imports to the United States, the spectre of populist-driven protectionism has once again risen to the fore. Appreciating the part free trade has played in Australia’s quarter-century of uninterrupted economic growth; the Prime Minister was right to leap to the defence of free and open markets. Malcolm Turnbull remarked that “protectionism is not a ladder to get you out of the low-growth trap, it is a shovel to dig it a lot deeper”. He went on to observe that free trade had provided more jobs for Australians “right across the country”.

Given the obvious job-creating potential of free trade, why does the lure of a return to protectionism still hold sway and what are the broader benefits of free trade for both Australia and the world?

In an era of globalisation and rapid changes to the labour market, the case for protecting Australian industries with high tariffs appears compelling for two chief reasons. The first is understandable concerns about job security, particularly in the blue-collar manufacturing and agricultural sectors where various lines of work have relocated offshore. The 2017 closure of Australia’s automotive industry is a recent case in point. With the demise of such industries, workers and their families are naturally anxious about future job prospects so government intervention to protect traditional industries is frequently mooted as a viable means to “saving Australian jobs”.

The second attraction of protectionism is perhaps a little more sentimental, a yearning for an Australia that can once again “buy back the farm” and “make things”. The nostalgic appeal of “Aussie-made” Holden cars, Victor lawnmowers and Bonds singlets holds strong when seemingly almost every consumer good bears the “Made in China” label. The blame for the decline of Australian-made goods is frequently laid at the foot of globalisation as traditional Australian manufacturers have fallen prey to overseas competition. Economic nationalists frequently argue that the re-erection of tariff walls will lead to a return of more Australian-made goods in our stores.

While some acute costs, both human and economic, have been no doubt sustained in Australia’s transition to free trade since the 1980s, the overall dividends of opening up Australia’s markets have far outweighed the drawbacks. As well as fostering the freer flow of goods and services, the dismantling of tariffs has made the country infinitely more attractive as an investment destination for businesses bringing fresh job opportunities for Australians. As a stimulant to the Australian economy, free trade has increased the country’s productivity and contributed to higher GDP growth. It has done this primarily by opening up new export markets for Australia and reducing the cost of imports to Australia.

In addition to deepening Australia’s ties with its regional neighbours, the brokering of free trade agreements with major trading partners such as China have brought more affordable and, in many cases, better quality goods to Australian shores. This has given everyday consumers greater value, variety and choice in the purchase of motor vehicles, furniture, white goods, electronics and clothing. Whilst some may bemoan the loss of Australian-made cars and fridges, they can rejoice in the greater quantities of Australian steel, coal and wheat now sold abroad.

As well as bringing benefits to Australia, free trade has been a humanitarian force for good in the wider world contributing to global peace and prosperity. In what is termed “commercial peace theory”, free markets evidently minimise the incentive for war with market exchange helping to facilitate cross-border relationships and mutual understanding. As Chris Berg argued in his book The Libertarian Alternative, the liberalisation of markets and the success of free trade have helped to usher in one of the most peaceful eras. While there is no room for complacency, the Human Security Report Project found that in the 2000s, less than 10 out of every million people died in war every year compared to a rate of 240 in the 1950s.

As welcome as the efforts of NGOs and charities have been in addressing global poverty, the greatest catalyst for raising living standards across the developing world has proven to be free trade. Over the past thirty years, the removal of punitive trade barriers by wealthy countries such as Australia has helped lift millions out of poverty in China, India and elsewhere. In 2009, John Howard observed that “the freer functioning of markets inherently involved in the globalisation process has lifted hundreds of millions of people out of poverty”. On the other hand, the former Prime Minister observed that keeping trade barriers in the developed world would cost poor countries more than twice the amount of foreign aid they stood to receive.

Free and open markets bring not only obvious pecuniary benefits but moral ones as well. Despite markets being commonly associated with self-centred greed, crass consumerism and exploitation, they can serve as a cooperative endeavour between seller and buyer. In such a relationship, each party is required to look out for the interests of the other. Menzies put it best when he described trade and commerce as involving “mutual understanding, mutual tolerance, a willingness to learn and a willingness to understand that the interests of the total body are greater than the interests of the individual”. This is as true for nations such as Australia as it is for individuals.

In the face of renewed calls for protectionism from abroad, the task for the Australian government is to not only hold fast to free trade but to explain its manifold benefits to an electorate with its fair share of lingering doubts. In conjunction with providing re-employment assistance packages to workers adversely affected by labour market change, a timely apologetic for free trade may convince many more Australians they have gained more than they have lost.

David Furse-Roberts is an Adjunct Research Fellow at the Menzies Research Centre and is editing a volume of speeches by former Prime Minister John Howard to be released in April 2018.

Illustration: Port of Melbourne Corporation.

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