International Trade and
When the Australian federation formed in 1901, trade policy was a major point of difference between the colonies that were to become states within that federation. It turned out that the protectionists dominated the free traders, and before World War I Australia had adopted a firm protectionist stance. For seven decades thereafter, tariffs on imports of manufactures continued to rise. The average tariff level on non-food manufactures almost doubled in the decade to 1920, and doubled again by 1932. It dropped only a little in the latter 1930s, and then rose again after World War II. Protection was further increased in the 1940s and 1950s with the adoption of quantitative import restrictions, and there was a ban on exports of iron ore and coal. Unlike most other industrial countries, Australia did not take part in the multilateral tariff reductions negotiated under the General Agreement on Tariffs and Trade (GATT) during the 1950s and 1960s. Hence by 1970 Australia was rivalled only by New Zealand in having the highest manufacturing tariffs among the industrial countries (Anderson and Garnaut 1987).
Those seven decades of import-substituting industrialisation cost Australia dearly in terms of its comparative standard of living. In 1900, Australia was arguably the highestincome country in the world on a per capita basis. But by 1950 its rank had slipped to third; by 1970 it was eighth; and by the 1990s Australia was not even in the top twenty. 1
Australia's comparatively poor growth performance for most of the twentieth century contrasts with that of the final decade, when Australia outperformed all other advanced economies other than Ireland and Norway in terms of gross domestic product (GDP) per capita growth (World Bank 2000b: tables 1, 3, 11).This was a period of especially rapid productivity growth (Parham et al. 1999; Dowrick 2001), in contrast to Britain, where much of its catch-up has been due to growth in employment and hours worked per worker (Card and Freeman 2002).
The difference between the Australian economy's recent and earlier relative performance is due very substantially to the economic policy reforms of the past three decades. The belated opening of the Australian economy to the rest of the world, coupled with many domestic economic reforms, not only has arrested the decline in Australia's per capita income ranking, but also has had a remarkable influence on the pattern of Australia's production and trade.