The Key Events in Trade Protection

In the first edition of this series, I examined the political economy theories that can be applied to analyse the rationales for protectionist policies. I also provided a brief overview of the evolution of import protection in Australia throughout the 20th century.

This article highlights the key milestones in policy development during that time. My aim is not to regurgitate these events on a decade-by-decade basis, as such recounts can be easily found in any history book (although as a recent economic history convert, I highly recommend you seek said books!). Rather, I think it’s crucial to delve into some of the reasons why we saw such a patent reversal of policy in the 1980s and for us to consider why these policies have endured.  This decade witnessed the breakdown of the ideas that Australia had embraced for nearly a century. The “protection all round” mentality was made glaringly redundant, allowing the country to adopt free trade ideologies that eventually formed the roots of a new and internationally competitive Australia.

Before we get to that though (and we won’t until the next article unfortunately), allow me to set the scene…

Setting the scene

Up until 1909, the two main political parties in Australia were the Free Trade Party and the Protectionist Party[i]. In a terrific analysis of Australia’s economic and political experience during the 1980s and 1990s, political journalist and historian Paul Kelly suggests that protectionism was viewed as the basis for nation building[ii]. Support for high levels of manufacturing protection became entrenched within the political priorities of that era, perhaps evidenced most clearly in Alfred Deakin’s insistence that “no nation ever claimed national greatness which relied upon primary industry alone[iii].” As the most prominent leader of the original Protectionist Party, former Prime Minister Alfred Deakin’s sentiments sum up very nicely the position of the pro-protectionism 20th century political elite.

The push for tariffs was given intellectual vindication in what has now become the renowned Stolper-Samuelson theorem. Stolper and Samuelson showed that protection of labour-intensive industries would raise the equilibrium real wage, and in a 1941 paper made the monumental claim that “…in Australia, where land may perhaps be said to be abundant relative to labour, protection might possibly raise the real income of labour[iv].”

The influence of protectionism ideologies was cemented under the leadership of John “Black Jack” McEwen in the post World War II era. Throughout twenty-nine years as Country Party deputy and leader, he ignited the pursuit of “McEwenism,” a policy of high tariff protection for the manufacturing industry[v].  His stance on protectionism was articulated as such: “I have always wanted to make Australia a powerful industrialised country…This meant that I was bound to favour broadly protectionist policies[vi].”

There were clear consequences for our international competitiveness and export trade. By 1970, Australia had the highest manufacturing tariffs amongst industrialised countries, equalled only by New Zealand[vii].

The turnaround

The prominence of protectionist policies was finally broken by the 25 per cent across-the-board cut in tariffs announced by the Whitlam government in 1973[viii].  Coming into the latter decades of the 20th century, the public became increasingly aware of the high costs of manufacturing protection imposed on the Australian community. These concerns were heightened by reviews conducted by the (then) Industries Assistance Commission (IAC). The IAC calculated that the annual cost of the tariff structure to Australian people rose from $4.3 billion to $6 billion between 1971/72 and 1977/78, whilst in 1975/6 the cost of preserving each job was $3,800 in the textile industry and $5,600 in the footwear industry[ix].

In the May Economic Statement of 1988, the Hawke Labor government announced tariff reductions equivalent to a 20 percent cut in average protection levels for the manufacturing industry[x]. These reductions targeted the most heavily protected industries and aimed to reduce disparities in assistance between industries. Thus when considering our economic progression through the 20th century, the 1980s were remarkable for Australia – trade policy and microeconomic reform in manufacturing embarked on a significant path towards liberalisation.

Moving forward

The next article in this series will take us back to the first principles of economics as we examine the arguments for and against free trade in the context of Australia’s history of trade protection. I will also examine more deeply the causes of the policy reversal and consider its significance (and perhaps relevance) to our present-day economy.

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[i] John Quiggin, Great Expectations: Microeconomic Reform and Australia (New South Wales: Allen & Unwin, 1996), 125.

[ii] Paul Kelly, The End of Certainty: Power, Politics and Business in Australia (New South Wales: Allen & Unwin, 2008), 6.

[iii] ibid, 6.

[iv] Wolfgang F. Stolper and Paul A. Samuelson, “Protection and Real Wages,” The Review of Economic Studies 9, 1 (1941): 73.

[v] Kelly, The End of Certainty, 6.

[vi] ibid, 6.

[vii] Kym Anderson and Ross Garnaut, Australian Protectionism: Extent, Causes and Effects (Sydney: Allen & Unwin, 1987), 6.

[viii] Quiggin, Great Expectations, 126.

[ix] Albert G. Kenwood, Australian Economic Institutions Since Federation (Melbourne: Oxford University Press, 1995), 80.

[x] Kenwood, Australian Economic Institutions Since Federation, 77.