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STRALIA 83
Key points
• A retreat from openness to trade in some countries may suggest to some that a rethink of
Australia’s commitment to free trade is needed. They would be wrong.
• Protectionism is not a magic wand. Protectionist trade policies would harm the Australian
economy rather than dealing with the insecurity concerns of citizens that, for many, globalisation
has come to encapsulate. But it would also be a mistake to dismiss the signs of discontent.
• The best response would be to continue to work towards freer markets. Australia can proceed
unilaterally, as most of the benefits, especially from lower non-tariff measures, do not depend on
our trading partners taking similar actions.
• But in practice, support for open markets is more likely to be forthcoming if pursued through
even-handed, rules-based, trade agreements that enable more countries to participate and benefit
from the expanded economic opportunities offered by improved market access.
• There is considerable scope to achieve better outcomes and foster public confidence in open
markets through Australia’s approach to trade agreements. In particular by:
– prioritising new regional agreements, especially those that allow benefits to a broader group of
countries and do not exclude others, and expanding the use of World Trade Organization
sector-specific agreements which have proven to promote multilateral liberalisation
– pursuing only those agreements where there is a strong case that a net benefit will result
– improving consultation processes, including providing key stakeholders access to draft treaty
text on a confidential basis during the negotiation and broadening participation in
negotiations to parties capable of offering critical assessment.
• Australia’s reputation as an attractive destination for international investors could be
strengthened through more consistent, transparent and predictable approval processes while
preserving our vital national security interests.
• Limited policy attention given to the distribution of the benefits and to the uneven costs of
adjustment associated with reducing protection is testing the social compact that underpins
open market policies.
– While Australia (like other countries) is a winner overall from open markets (and technological
change), some displaced workers struggle to find a new job.
– Continued support for open markets relies on the community seeing that the gains are shared,
and that there is effective support for those who are negatively affected by trade.
• More effective policies to facilitate adjustment, for example retraining, merit investigation and
existing policies should be regularly evaluated to ensure they deliver their intended outcomes.
• Better understanding of community concerns about free trade, improved engagement with the
community around the case for open markets and clearer communication about the benefits of
trade and the policies in place to support adjustment would also help to build community
acceptance and reduce pressures for higher protection.
84 RISING PROTECTIONISM: CHALLENGES, THREATS AND OPPORTUNITIES
6.1 Is there a case for a policy rethink?
The global trade landscape has evolved substantially in recent years. Most significantly,
following decades of support of a liberal trading order, the discourse has changed in key
advanced economies. A growing number of people in our communities are expressing
scepticism about the benefits of trade and concerns about the ‘offshoring’ of jobs. This is
once again fuelling protectionist sentiment. This is most evident in the United States,
although so far it is unclear how their trade policy will change. Likewise, in parts of
Europe protectionist protagonists have also been empowered.
Another significant development in international trade is the growing importance of global
supply chains (GSCs). These have been facilitated by technological innovations, notably in
transport, communications and logistics, and by recent trade agreements. Specialisation by
firms within GSCs contributes to productivity growth, but the displacement of jobs as
production is relocated across borders contributes to community concerns about trade.
Furthermore, the majority of new trade agreements in force, or under negotiation, cover a
vast array of policy areas. They serve to facilitate trade,23 but can also constrain national
sovereignty. While the number of preferential agreements has escalated exponentially,
progress in broad multilateral negotiations is effectively at a standstill.
These developments may suggest to some that a rethink of Australia’s commitment to free
trade is needed. They would be wrong. The earlier chapters of this report assessed the
possible impacts on the Australian economy and elsewhere of highly stylised scenarios that
depict a shift internationally towards a more protectionist and distortionary trade policy
stance. The analysis demonstrated that if Australia were to follow suit, community
wellbeing would decline because of higher prices and reduced consumer choice, and the
ability of Australian businesses to participate in GSCs would be limited — ultimately
affecting their productivity. For every $1.00 increase in Australian tariff revenue,
economic activity in Australia would shrink by $0.64 (chapter 4).
However, it would also be a mistake to dismiss the signs of discontent. For many people,
income has stagnated, feelings of economic insecurity are more pervasive and income
inequality is widening. While these developments are more closely linked to technological
disruption (Helpman 2016), and are more pronounced in other advanced economies, they
could be exploited. If not addressed, Australia’s poor productivity performance portends a
sustained period of low income growth, which could lead some to blame trade and renew
calls to protect local jobs and industries.
Even where people support free trade, there are legitimate concerns about particular trade
agreements and trading relationships. Past work of the Commission has highlighted how
bilateral agreements entail costs and have not always delivered the expected benefits or
23 Just how much they promote trade depends in large part on the stringency of the rules of origin. Stringent
rules, which require a high share of local value added, or considerable product transformation, reduce the
ability of firms to use the negotiated preferences (Crook and Gordon 2017).
WHERE TO FOR AUSTRALIA 85
earned the broad support of the community (PC 2010). Arguably, the limited policy
attention given to the distribution of who benefits and to the uneven costs of adjustment
associated with reducing protection is testing the social compact that underpins open
market policies.
The current environment thus presents a timely opportunity for Australia to evaluate its
approach to international trade, and other relevant policy measures. What should Australia
do in the face of the new swing towards protectionism? Are there strategies for avoiding
the risk of backsliding on protection? How can the costs of adjustment be minimised and
the benefits of liberalisation made more inclusive?
This chapter draws on the stylised scenarios and the Commission’s model used in previous
chapters, and on other analytical work, to discuss the actions that Australia might take on
trade and foreign investment policy. It outlines a three-pronged strategy to help achieve
better outcomes for all Australians, foster public confidence in open markets and reduce
protectionist pressures. The first prong is to continue to work towards freer markets
(section 6.2) and to pursue even-handed, rules-based trade agreements (section 6.3). The
second prong is to focus on the broader policies that strengthen the workforce’s
adaptability to changes taking place in the global economy, not just trade (section 6.4).
And the third prong is to improve how governments engage with the community about
trade and investment (section 6.5).
CONCLUSION 6.1
Rising protectionist sentiment and actions in some countries may suggest to some that a rethink of
Australia’s commitment to free trade is needed. They would be wrong. However, there is a case to
better understand and respond to the insecurity concerns of citizens about jobs and incomes that,
for many, globalisation has come to encapsulate. The current environment presents a timely
opportunity for Australia to evaluate its approach to international trade and investment and other
relevant policy measures.