Lukewarm support for tariff cuts is consistent with a central contention of public choice that voters are rationally ignorant of policies that would benefit them. In a democracy, it is theorised, good policies are an underprovided good. As the costs of tariffs are spread across an entire population while the benefits concentrated in particular industries, consumers naturally have little monetary incentive to investigate government policies. For this reason, polls do not show overwhelming opposition to protectionism. The protected industries, on the other hand, are motivated to lobby the government as they stand to lose significantly from open competition.
This explains why, for much of Australia’s trading history, a mentality of mercantilism was dominant. It took 60 years from federation for politicians to begin dismantling the protective state. It wasn’t until the Tariff Board began surveying the evidence for and against free trade in a systematic manner during the 1960s, that the costs of trade barriers were de-mystified. In response to the economic ailments caused by protectionism, three major tariff cuts — in 1973, 1988 and 1991 — were implemented.
It is now agreed that protectionism imposed many costs, the brunt of which fell on the consumer. Import restrictions pushed up the cost of living and limited the range and quality of goods and services available. There were also efficiency costs. Productivity declined as domestic producers were sheltered from international competition and didn’t have to face the discipline of the market. As a consequence, growth in real incomes during the period of protectionism was disappointing.
Given that the evidence in favour of free trade is so overwhelming, it’s odd that recent governments have chosen to move towards free trade through the most cumbersome and ineffective means possible – bilateral and multilateral trade deals. These result in “government managed trade”, with special concessions given to favoured industries and groups. Genuine free trade would probably only require a few pages of legislation, instead of many thousands.
The 1980s showed there’s a better way that doesn’t involve as much wastage of paper: unilaterally lower trade barriers; treat all nations equally; and follow through with promises to stick to a time-frame.