Support for free trade should never be unconditional

According to Chris Berg (Institute of Public Affairs) on October 17, "free trade would be beneficial even if Australia was the only country in the world that believed in it".

But is such commentary reflective of the policy difficulties ahead for Western nations, or do such statements merely represent poor scholarship based on wishful thinking?

For myself, also offering a perspective which supports free trade (within reason), commentary also needs to inform the public of likely trends to reflect the potential conflict that results from efforts to reconcile how the world should be and how the world is.

As The Economist stated on December 18, 2008, when urging greater macroeconomic stimulus as the best insurance against protectionism, there was an increasing risk that many governments would seek "to prop up domestic jobs and incomes by diverting demand from abroad with export subsidies, tariffs and cheaper currencies".

Even then, Washington was providing a bail-out for Detroit's carmakers, while Nicolas Sarkozy, France's president, suggested then that Europe will turn into an "industrial wasteland" if it too did not prop up its manufacturers, strategies that would invite retaliation.

The rest is history. Just recently, and only weeks after the US Senate passed a bill during October 2011 supporting US retaliation against China's currency manipulation, the China Daily (November 2011) reported that the US government was considering a 100 per cent tariff on Chinese PV solar cells because of fears that Chinese companies are selling solar cells below cost and receiving illegal government subsidies. The article also argues that "China has been a victim of trade protectionism for years", and that "China has been hit by 602 trade remedy cases worth $38.98 billion since entry into the World Trade Organization a decade ago".

And, predictably, the Chinese government announced in mid-December 2011 that it will, for the next two years, target US vehicle imports with engine capacities of 2.5 litres or more through anti-dumping penalties ranging from 2.0 to 21.5 per cent and anti-subsidy tariffs at a maximum 12.9 per cent.

But for Australian free trade zealots, such as Chris Berg, Western protection in response to the rise of mercantile China is a mistake given that latter nation "is taxing its citizens in order to prop up businesses", which means that "these subsidies are a direct wealth transfer from third-world taxpayers to first-world consumers".

To Berg, even Tony Abbott, the leader of Australia's major centre-right political party which generally supports less government intervention, was wrong to support a more interventionist industry stance towards China. Abbott had indicated a trade agreement with China was less of a priority than one with Japan on the basis that China is not a market economy. He had earlier suggested tougher laws against anti-dumping to penalise goods subsidised by foreign governments in order to ensure a "genuinely level playing field with a fair go for Australian companies".

But Abbott's comments are in tune with wider international concern about the rise of mercantile China.

Simple truth is that no Western society or government will always adhere to the promotion of freer trade without considerable consideration to its own strategic considerations.

As the Howard government realised with its own efforts to encourage freer trade yet preserve the national interest, Australia would struggle to have a high-tech manufacturing industry without substantial industry assistance. Howard, in 1999, also had to accept US restrictions on Australian and New Zealand lamb imports, despite rhetorical commitments from the US to free trade.