The Albanese government’s Future Built in Australia plan, if nothing else, has certainly caused an unexpected outbreak of bipartisanship among many of our commentariat. Erstwhile political foes have united against what they are calling the ‘new protectionism’.
Global warming obsessive Ross Garnaut now warmly agrees with John Howard on this issue. Greg Sheridan and Adam Creighton, famously on opposite sides of the Covid debate, appear to be singing from the same song sheet. Economic dries like Judith Sloan and Gary Banks have formed a unity ticket with suspiciously lefty folks like Bernie Fraser and Danielle Wood. The editorials of The Australian and The Australian Financial Review have become largely indistinguishable.
Yet surveying these contributions from the great and the good, I can’t help but think how the notoriously sharp-tongued Alexander Hamilton, the First Treasury Secretary of the United States, would have responded.
Many in Australia will be newly familiar with the story of this American Founding Father because of the hip Broadway musical ‘Hamilton’, written by Lin-Manuel Miranda, which played to sell-out crowds across theatres here over the last 3 years.
‘Alex’, as the lyrics cheekily refer to him, was clearly a pretty clever guy. Manager of an international trading company at age 14. Founder of The New York Post. George Washington’s right-hand man during the War of Independence. Key author of The Federalist Papers, which helped craft the United States Constitution. Architect of the American financial system. His would have made quite the LinkedIn profile.
He was also an arch-protectionist. Hamilton believed tariffs were fundamental for the establishment of a manufacturing sector in his new nation. This, incidentally, is a view shared by all the presidents on Mount Rushmore. Almost every Australian Prime Minister since Federation until Whitlam also held the same view. This included the longest-serving political leader of our country and founder of the Liberal Party, Robert Gordon Menzies.
These great men were not unsophisticated rubes. They had a very firm grip on the realities of international trade and geopolitics. Unlike the current political class in Australia, they understood how tariffs were necessary for maintaining national sovereign capabilities. They also recognised their importance in creating and preserving a middle-class, so vital for the survival of our respective democracies. They were familiar with the arguments for ‘free trade’, but ultimately considered them Utopian.
Reading again through the Report on Manufactures, which Hamilton delivered to the First Congress of the United States, one is struck by how he had to deal with the same arguments we hear in Australia today.
America, his critics then argued, should not focus on manufacturing. It obviously could not compete with other countries that already had well-established industries and lower labour costs. The comparative advantage of these newly united former colonies of Britain, experts of time explained, lay instead in exporting primary produce to a newly industrialising Europe. The new government should not pick winners. And besides, there was obviously much easier money to be made in real estate speculation, fuelled by immigration, rather than the difficult and risky business of building things like factories.
Yet Hamilton’s views prevailed and under his guidance The Tariff Act was the first major act passed by the United States. American industry was born – with important consequences for that country and the world.
Many tumultuous years lay ahead for the young republic. Various adjustments and accommodations were needed to be made, in part, to appease the agrarian slave-owning South which favoured free trade. However, eventually a new political party, The Republican Party, was formed – which was as resolutely in favour of protectionism as it was anti-slavery. ‘Give us a protective tariff and we will have the greatest nation on Earth,’ declared their new leader, Abraham Lincoln. Post-Civil War, behind a high tariff wall, his prophecy came to pass.
Australia has been influenced by the American experience for good and ill over the years. In the first part of the 20th Century, like the Americans, we successfully build up great industries and a prosperous middle class through protectionism. After the second world war because of its dominance and to help its allies against the communist threat the United States gradually opened its domestic market.
After the Cold War, however, things went into hyperdrive. The North American Free Trade Agreement was passed in 1994. With US support, the Uruguay Trade Round was finalised, and the World Trade Organisation was established in 1995. Then things truly went nuts when Washington made permanent China’s most-favoured-nation status and endorsed its entry into the WTO in 2001. A vast de-industrialisation of the country which would have made the American Founding Fathers turn in their grave occurred during this time. Australia largely followed the same path.
Now the United States, belatedly recognising the flaws in its recent approach, is turning back in a Hamiltonian direction. There is a new bi-partisan commitment there to both tariffs and supporting industry plans.
If one is being charitable, one could say that the Albanese government’s plans at least recognise an adjustment needs to be made. To be clear though, I am not arguing that Jim Chalmers is the new Alexander Hamilton. Just because you have an industry plan does not mean it is a good one. I am as sceptical as many about aspects of the Future Made in Australia. Our Treasurer also seems to have missed the important point that industry plans should only ever be a complement to thoughtful trade policy and are doomed to fail without it. Why spend billions of public funds manufacturing solar panels or similar in Australia, if China and others can just undercut that production with cheaper imports?
But as for the newly bipartisan chorus of critics who doubt change is needed to trade and industry policy let’s make things crystal clear: (1) Australia will never be able to re-establish a substantial manufacturing industry so long as well over 90 per cent of goods from China and other similar countries are allowed to come into Australia duty-free (2) A nation without a substantial domestic manufacturing industry is placing its long-term prosperity as well as its national security at risk.
Alexander Hamilton could have told you that – albeit likely in far more brusque terms.
Dan Ryan is a director of The National Conservative Institute of Australia.
First published in The Spectator as “On trade we need more Alexander Hamilton and less Hawke/Keating/Howard” on 8th May 2024. © Dan Ryan 2024. All Rights Reserved.
