In the United States, international trade is a hot-button political issue. Australia, on the other hand, is likely to get through the long election campaign with hardly a mention of tariffs and industry protection. Why the difference?
Donald Trump’s policy positions may be a kaleidoscope of contradictions, but his message on foreign trade is pretty consistent: exports are good but imports are bad. Hillary Clinton, always a bit ambivalent but at least initially a tentative supporter of the Trans-Pacific Partnership (which she described as the ‘gold-standard in trade agreements’), has now changed her mind and ‘currently opposes it in its current form’. The US Congress takes a keen interest in ensuring that trade deals favour American interests.
This insularity mirrors a wider public perception that opening up the economy to international trade has been harmful, especially to manufacturing employment. Concern about the ‘giant sucking sound’ of NAFTA taking away American jobs may not have won Ross Perot the presidency in 1992, but this jaundiced view of international trade has remained. It is widely seen as the main cause of the stagnant real incomes of America’s blue-collar workers. Indeed, this discontent might be the single biggest driver of the astonishing rise of The Donald.
Meanwhile in Australia, the Trans-Pacific Partnership (and globalisation more generally) haven’t yet figured in the election campaign. Of course the current Coalition government supports TPP and all it stands for — after all, it negotiated and signed the draft. The Labor Party might have some specific concerns. It is (justifiably) suspicious of the dispute settlement processes (ISDS), and wants to be assured that the intellectual property provisions don’t undermine Australia’s pharmaceutical benefits program. And of course it is the defender of Australian workers. Thus it was concerned that the China-Australia Free Trade Agreement (ChAFTA) didn’t open up opportunities for temporary import of Chinese workers to undercut Australian labour.
But having rehearsed these concerns and had them allayed, Labor will not stand in the way of ratification the TPP, not just because of its economic content, but because of its place in the wider context of Australia’s position in the world and more specifically Australian-US relations. If an American administration is strongly pushing the TPP, we will sign up without a whimper of disagreement. Similar political realities would prevent Labor from undermining ChAFTA’s ratification.
The Greens and independents, with no prospect of having to actually run the country, can afford to tap more populist concerns about damage to specific local industries and jobs, but even they have focused on the detail (such as the ISDS) rather than promoted an anti-globalisation agenda.
The current bipartisan support for free trade reflects the consensual resolution of a century–old debate. Free–trade versus protection was one of the fundamental issues in the Australian Federation (the Lowy Institute’s usual home is in the building of the now-defunct New South Wales Club, established to support free trade). Until 1973 widespread industry protection (‘protection all round’) was the norm. This was a key element in the ‘Australian settlement’, Paul Kelly’s interpretation of the first 70 years of Federation.
By the late 1960s, however, both main political parties had come to recognise that Australia, as a medium-sized country, would be hugely disadvantaged if it cut itself off from the global economy through protection.
Perhaps surprising at first sight, the key episodes of tariff-reduction actually took place under Labor Party governments, with its close ties to the union movement. Tariffs were reduced across–the–board by 25% in 1973. Further reductions in 1988 and 1991 (in the middle of a deep recession) took tariffs down to negligible levels, with the important exceptions of footwear, textiles and clothing, and passenger motor vehicles.
While the actual reductions took place under Labor, the conservative Coalition had laid the groundwork in the late 1960, and there was always pressure from the powerful National Party, representing rural and resource export sectors with self-interest in promoting international openness. Radical policy change is always easier if the government of the day is pushing at an open door, with the parliamentary opposition already agreeing with the policies.
One Labor Party insider attributes his party’s free-trade conversion to the power of ideas, overriding the vested interests which had dominated the debate. The Labor Party in this reform era was dominated by big-thinking internationalist politicians who envisaged a global role for Australia and saw that this was incompatible with inward-focused industry protection. Australia’s role in forming APEC (the high point being the tariff reduction pledges at Bogor in 1994), was not compatible with protectionist policies at home. Others were influenced by the example of Sweden, a small economy whose wealth relied on trading with the world.
The detail of history is always more nuanced. Energetic bureaucrats and policy-oriented academics also played an important role. Whatever the true interpretation of this extraordinary reform era, by 1999 Simon Crean, Labor Party stalwart, declared the protectionist debate was ‘confined to the dustbin of history’ for Australia and there it has remained.
Meanwhile, America’s position and pressures are different. [fold] The huge and diverse economy has no need to compensate for small scale by being integrated into the global economy. Its tradition is more self-reliant and inward looking (remember the famous New Yorker cover ‘View of the world from 9th Avenue’?)
Vested interests are more dominant in the US, and more effectively linked into the political process. The squeeze on blue–collar and lower middle class workers is more keenly felt because of the lacklustre recovery from the 2008 crisis. Australia, on the other hand, has experienced nearly a quarter–century without recession.
There can be nit-picking criticism and slippage in execution of pure free trade in the guise of ‘industry policy’. But the fundamental point remains: this debate is over and Australia is committed to globalisation.
Photo courtesy of Flickr user russellstreet