Fernando MonteiroAustralia: Free-trade or Protectionism
May 30th 2010 15:03
In the last four decades Australia has been, under governments on both sides of politics, a world champion of free-trade. Yet, what has been achieved with that is nothing short of shame and misery. And still today some free-trade thinkers propose that we take the single stand of opening up our borders completely and unilaterally to foreign trade. Madness never so much disguised itself as a sensible thing as in this matter.
There is something that must be said upfront: free-trade, as well as its related neo-liberalism, free-market economics or economic rationalism is an ideology – it’s not science, not even economics is a science, but it’s a political inclination. This means that the people that propose free-trade at all costs do not answer to reason but just obsessively hammer the same key all the time.
What is then the argument for free-trade? In a nutshell, the idea is that if two countries abolish tariffs and open their economies to trade with no customs barriers at all, both will benefit from that. Why? Because industries on both sides would shape up, the strong competitive ones wining, the underperforming ones being eliminated. Obviously, they hope that this would happen reciprocally on both sides of the border, each country specialising on what it does best, so the consumer on both sides would be better served with price and quality.
Since the 1970s Australia has embraced this view and taken measures accordingly by reducing tariffs progressively. What has been achieved, though, is nothing short of abysmal. Up unto the 1970s Australia manufactured everything that it consumed. Since then, as it has removed tariffs, the result has been that all that manufacturing industry that then existed was demolished and that we now import all we consume.
We have had Current Account Deficits (CAD) with the rest of the world in the last 24 years and our Foreign Debt now stands at $700 billion. If you need a recipe for a headheck, think of what would happen to us if, within this global financial crisis that we still live in, our creditors demanded the repayment of that debt in full now.
Moreover, and contrary to belief pushed by free-market economists, no new industry was born from the ashes of the destroyed industries. We just live on rural and mining exports of mostly unprocessed and no value-added products and a services sector. We send our iron ore and coal to foreign countries and buy from them steel and equipment. We sell our Merino wool to Asia and buy back wool fabrics and clothes. And so on.
The removal of tariffs has been for Australia like losing an arm and a leg. Without a manufacturing industry it must keep on buying from overseas countries what it cannot produce. Problem is: it cannot afford it.
A strong manufacturing industry base is of utmost importance to any country: it employs large numbers of people; it intermingles with other areas of the economy, providing inputs and outputs for it; it produces (should) most of what the country needs to use and can be a vehicle for export. Altogether it’s not little.
All the great economies have had large, self-sufficient internal economies. Just think of the United States since World War I, and also Germany and France. Now-a-days, upcoming China is trying with some success to create a large internal economy in which manufacturing is paramount, so that the country relies less on exports.
We have heard so much about tariffs that it is necessary to ask: honestly, what is wrong with tariffs? Tariffs are a duty imposed on the base export price of an imported article. They make it more expensive and, ideally, bring its price to the consumer closer to the prices of products made at home. This way the homely product has a chance of being sold and its paid price stays also at home, circulating in its economy, creating gains and employment.
The World Trade Organisation (WTO) imposed tariff removal from most countries of the world, but most of them imposed in substitution quantitative restrictions. These are quotas, or maximum numbers of an item that can be imported and which has worked better than tariffs. Australia, single-handedly, has not imposed any quantitative restrictions on its imports.
Australia has Free Trade Agreements (FTA) with several countries such as New Zealand (CERN), with the US (USAFTA), with Japan and Korea, multilaterally with the countries of the ASEAN and, in the pipeline, with a quantity of other Asian countries. This sounds interesting but consider the results of the free trade agreement with the US, as just one example of the practical result of these treaties: since its inception in 2003 trade has been unfavourable to Australia by $500 million.
The argument for tariffs, quantitative measures and all types of import restrictions and trade barriers, derives from this instinctive need to protect internal economies from foreign competition. This is an issue of national interest but also, in a certain way, an issue of national security since, the way that it is going, we are just committing economic suicide. It could be said that a government that removes all our tariffs and exposes our economy to be crushed by foreign competition is culpable of, not just mismanagement, but also of betrayal.
There is something that must be said upfront: free-trade, as well as its related neo-liberalism, free-market economics or economic rationalism is an ideology – it’s not science, not even economics is a science, but it’s a political inclination. This means that the people that propose free-trade at all costs do not answer to reason but just obsessively hammer the same key all the time.
What is then the argument for free-trade? In a nutshell, the idea is that if two countries abolish tariffs and open their economies to trade with no customs barriers at all, both will benefit from that. Why? Because industries on both sides would shape up, the strong competitive ones wining, the underperforming ones being eliminated. Obviously, they hope that this would happen reciprocally on both sides of the border, each country specialising on what it does best, so the consumer on both sides would be better served with price and quality.
Since the 1970s Australia has embraced this view and taken measures accordingly by reducing tariffs progressively. What has been achieved, though, is nothing short of abysmal. Up unto the 1970s Australia manufactured everything that it consumed. Since then, as it has removed tariffs, the result has been that all that manufacturing industry that then existed was demolished and that we now import all we consume.
We have had Current Account Deficits (CAD) with the rest of the world in the last 24 years and our Foreign Debt now stands at $700 billion. If you need a recipe for a headheck, think of what would happen to us if, within this global financial crisis that we still live in, our creditors demanded the repayment of that debt in full now.
Moreover, and contrary to belief pushed by free-market economists, no new industry was born from the ashes of the destroyed industries. We just live on rural and mining exports of mostly unprocessed and no value-added products and a services sector. We send our iron ore and coal to foreign countries and buy from them steel and equipment. We sell our Merino wool to Asia and buy back wool fabrics and clothes. And so on.
The removal of tariffs has been for Australia like losing an arm and a leg. Without a manufacturing industry it must keep on buying from overseas countries what it cannot produce. Problem is: it cannot afford it.
A strong manufacturing industry base is of utmost importance to any country: it employs large numbers of people; it intermingles with other areas of the economy, providing inputs and outputs for it; it produces (should) most of what the country needs to use and can be a vehicle for export. Altogether it’s not little.
All the great economies have had large, self-sufficient internal economies. Just think of the United States since World War I, and also Germany and France. Now-a-days, upcoming China is trying with some success to create a large internal economy in which manufacturing is paramount, so that the country relies less on exports.
We have heard so much about tariffs that it is necessary to ask: honestly, what is wrong with tariffs? Tariffs are a duty imposed on the base export price of an imported article. They make it more expensive and, ideally, bring its price to the consumer closer to the prices of products made at home. This way the homely product has a chance of being sold and its paid price stays also at home, circulating in its economy, creating gains and employment.
The World Trade Organisation (WTO) imposed tariff removal from most countries of the world, but most of them imposed in substitution quantitative restrictions. These are quotas, or maximum numbers of an item that can be imported and which has worked better than tariffs. Australia, single-handedly, has not imposed any quantitative restrictions on its imports.
Australia has Free Trade Agreements (FTA) with several countries such as New Zealand (CERN), with the US (USAFTA), with Japan and Korea, multilaterally with the countries of the ASEAN and, in the pipeline, with a quantity of other Asian countries. This sounds interesting but consider the results of the free trade agreement with the US, as just one example of the practical result of these treaties: since its inception in 2003 trade has been unfavourable to Australia by $500 million.
The argument for tariffs, quantitative measures and all types of import restrictions and trade barriers, derives from this instinctive need to protect internal economies from foreign competition. This is an issue of national interest but also, in a certain way, an issue of national security since, the way that it is going, we are just committing economic suicide. It could be said that a government that removes all our tariffs and exposes our economy to be crushed by foreign competition is culpable of, not just mismanagement, but also of betrayal.
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