NCPA - National Center for Policy Analysis

Protection Versus Free Trade in Australia

May 22, 2002

Australians are upset about the farm subsidy bill President Bush signed into law May 13, says Bruce Bartlett.

Subsidies allow U.S. farmers to sell their products at lower prices than unsubsidized farmers. Because the U.S. is both the world's largest producer of and market for agricultural products, subsidies drive down world prices and thereby hurt farmers worldwide.

Subsidies are an indirect form of trade protection since foreign producers cannot match subsidized prices. Ultimately this hurts domestic producers the same way that direct protection, such as tariffs and quotas, does.

Australia knows this lesson well because for 70 years it had one of the most protected markets on earth. It had very high tariffs and stringent quotas on almost all manufactured goods.

But in 1973 Australia moved away from protectionism because virtually everyone saw that it was impoverishing the nation.

  • In 1913, Australia was one of the wealthiest countries on earth with real per capita Gross Domestic Product (GDP) of $5,715.
  • This was higher than every country in Europe and well above the U.S., with a per capita GDP of $5,301, according to economist Angus Maddison.
  • But by 1973, although Australia's per capita GDP had risen to $12,759, many European countries had higher incomes, and it had risen to $16,689 in the United States.

Beginning in 1973, Australia embarked on one of the most significant unilateral trade liberalization programs in history. Tariffs were slashed, quotas abolished and other restrictions on imports scaled back.

Trade liberalization was accompanied by elimination of investment barriers, privatization, deregulation and currency reform. In recent years, Australia has had one of the highest productivity growth rates on earth.

Now Australians are upset that their biggest customer -- the U.S. -- wants to go back to the old protectionist ways of subsidies and tariffs.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 22, 2002.


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