After the Second World War many countries were devastated both geographically and economically. A trend of protectionalism, first started by the USA was adopted by many nations in an attempt to protect their economies. This resulted in a halt in world trade as high tariffs and quotas were introduced to stop cheap imports invading the domestic market. Tariffs are taxes placed on specific imported goods, also known as import duties and quotas are physical limits on the level of imports in any one year for specific imported goods.
This created huge barriers to trade and world trade was reduced to necessity goods that some countries were simply unable to produce. In recent decades Australia has changed its outlook on the rest of the world and has changed from a very inward looking protectionalist state to a liberalised economy with multiple trading partners. Economic theory shows us that a more open, outward looking economy can deliver higher living standards than highly protected, inward looking economies.
Increased competition, more efficient uses of resources, new markets and opportunities, and new technologies and higher returns to innovation all increase welfare. Economic modelling confirms that unilateral trade liberalisation is good for Australia. It is estimated that gains form liberalisation to date are around 1. 5% of GDP. The removal of all tariffs would create 40,000 jobs in the short term (2 years), in all industries except the highly protected PMV and TFC sectors.
These job increases would be across all areas from non skilled labourers to highly trained scientists, and across all states, including Victoria where the highly protected sectors are situated, but where there are also strong growing export industries which are held back by tariff protection. In the longer term gains would be over 1% of GDP, on average $750 per family. These modelling estimates may well be conservative, as they exclude dynamic efficiency gains, and do not take into full account the impact of removing non tariff barriers.
Since the mid 80's, when trade barriers started to fall, Australia's ratios of exports and imports to GDP have each risen from around 15% to 20%. The expansion of exports has strengthened Australia's industrial base. Greater access to imports has benefited consumers and businesses by widening the choice of products available to them. Experience from Australian industries tells us that liberalisation has reduced the cost of inputs and provided more cost effective access to leading technology to help firms become competitive exporters.
Tariff reductions in Australia over the years have driven improvements in productivity and competitiveness in order to survive (manufacturing firms in particular). Containment of subsidies and assistance in competitor countries has assisted export growth (mainly agriculture). Many firms in sectors not previously associated closely with exports have outgrown their domestic markets, lifted productivity and become competitive in world markets; they are now dependant on international liberalisation continuing their own growth. Of course there are always losers in something like this.
Economic theory tells us there will be winners and losers and short term adjustment costs as well as long term benefits from liberalisation as resources move to more efficient uses. The better the economic fundamentals and economic management are, and the more open the other markets are, the easier it will be to realise the benefits of being an open outward looking economy. Economic modelling tells us that if all remaining tariffs were to be removed, the more highly protected automotive and TCF sectors would be short term losers in terms of employment losses and plant and machine operation jobs would decrease.
The biggest winners if all remaining tariffs were removed (in terms of more jobs) would be in services and some areas of manufacturers. Trade tells us liberalisation to date (both in Australia and overseas) has helped firms to improve competitiveness and, in Australia, has increased exports in many industries not traditionally thought of as exporters, especially elaborately transformed manufacturers (ETM) and processed food products. Experience from Australian industries tells us trade liberalisation and globalisation of business increases competition from imports as well as in export markets.
Many firms have emerged as winners from liberalisation processes but have experienced "costs of adjustment" in order to get there. Many firms have made efforts to move up the value added scale and in the process have invested heavily in R&D, product development, new technology and plant. Many have sought and found market niches in high value added areas. A strong emphasis on improving the training, skills and productivity of staff has also shrunk a number of jobs, thus reducing costs of production and ensuring survival of the firm.
Many aspects of operations have moved offshore to find the most competitive location for the firm's investment in the processes concerned. Such investment strategies have also enabled viable operations to be retained in Australia, this appears particularly to be the case for TCF and processed food firms. Joint ventures, strategic alliances and importing as well as exporting have commonly been employed to achieve competitiveness and maintain and expand employment. Ad protection has fallen, manufacturers have increased productivity and are making inroads into international markets.