Productivity Commission has stated that Australia must not become an isolated market, instead, the country should pursue trade liberalization. To achieve that, Australia needs to maintain high levels of productivity. Unlike some other countries that have drastically improved productivity and living standards on the back of their manufacturing sectors, Australia hasn’t managed to achieve that level of advance, even though manufacture now constitutes 90% of local employment. The chairman of the commission, Michael Brennan, believes that “Australia needs to learn the lessons of past recessions.”
“The aftermath of the 1890s recession saw the establishment of the fortress Australia’ approach – with trade protection, wage arbitration, and government monopolies in key industries. The 1930s saw the worldwide rise of trade barriers. By contrast, the early 1980s and early 1990s saw a fundamental rethink of Australian policy, focused on openness to trade, competition and greater flexibility”.
The commission believes that reform is needed and that Australia can improve its economy only by opening its market and favoring a liberal trade approach.
“Looking to our history provides some lessons for the future – including the importance of openness to trade and investment, competition and flexible regulation of product and labor markets,” Brennan said.
The treasurer, John Frydenberg, is also very critical of protectionism. He said that if Australia decides to go back to economic isolationism, it will “carry huge economic costs.”
He understands that building a self-sustaining economic core is a good thing, but it can easily lead to isolation.
“Australia felt these pressures first-hand during the early stages of Covid-19, with our domestic manufacturing sector pivoting to assist with the production of masks and other medical equipment. However, calls for greater self-sufficiency must not go too far, resulting in a more fractured global economic system or become a back door to increased protectionism.
The answer to building economic resilience is not to shut ourselves off from the benefits of economic openness,” he said.