Free traders at home and abroad

It is 150 years ago since Leo Tolstoy’s literary masterpiece War and Peace was published in 1869.

This classic details the French invasion of Russia and describes the impact of the Napoleonic period on Tsarist society through the stories of a number of Russian aristocratic families.

Tolstoy’s masterpiece takes place in an era of economic nationalism as Napoleon tried to block European trade with Britain.

The novel shows us how Europe was torn apart during this period, devastated by a war that continued for many years.

History shows that the conflict also had economic underpinnings – namely Napoleon’s desire to block trade between Britain and continental Europe.

Had political leaders of that time adhered to the principles detailed in another masterpiece written a generation earlier, perhaps conflict may have been avoided.

Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations was first published in 1776 and outlined how individual liberty, private property, and voluntary exchange under limited government could both improve the human condition and enhance peaceful co-existence through trade.

Similarly, at the start of the 20th century, economic nationalism was the dominate practice, and a major contributor to the outbreak of two world wars.

Before World War I, many nations accepted the gold standard, backing their currency to a fixed quantity of gold (or silver), as an attempt to anchor their monetary systems.

However, from 1913, a growing number of countries began to suspend or abandon this system to fund war efforts, and to compete for export markets after the war.

The end of World War I was followed by the first worldwide currency war. Starting in Germany’s Weimer Republic during 1921, currency devaluation practices spread across major economies.

This trade war reinvigorated nationalist sentiment, culminating in the rise of Adolf Hitler and Nazi Germany.

In 1930, the United States Congress passed the Smoot-Hawley Tariff Act, raising tariffs on more than 20,000 imported products and sparking retaliation from many of its trading partners, including Japan.

Japan reciprocated, moving to limit imports from Europe and North America. The peak of this nationalist behaviour manifested in Japan’s invasion of China in 1937.

Following World War, II most European governments – learning from the errors of the past – embraced trade liberalisation, eventually leading to the creation of the European common market.

In the Asia Pacific, Australia developed strong trade ties with Japan following the cessation of war and every Australian has benefitted from these closer economic bonds.

The historical lesson is obvious; free trade is a powerful deterrent of conflict, while protectionism has only stoked nationalism and conflict.

This point was made by liberal writer Otto T Mallery in a 1941 article “Economic Union and Enduring Peace” when he stated, “If soldiers are not to cross international boundaries, goods must do so.”

However, the principle is dangerously being ignored by the world’s two greatest economic and military super powers.

A protracted trade war will only damage global economic growth and increase geo-political tensions.

Australia has been a major beneficiary of trade liberalisation.

Last month Australia posted a record trade surplus of $49.8 billion for 2018-2019 and has now marked 18 consecutive monthly trade surpluses, the first such achievement since 1972-1973.

But it’s the ‘Quiet Australians’ who have been the winners. The dividend from this record run of growth and higher terms of trade has seen the national income per person lift from just $40,000 to over $70,000 in real terms.

And trade liberalisation is now a cornerstone of Australia’s future economic growth and job opportunities with the Coalition government having engineered 11 free trade agreements with countries including the US, China, Singapore, Japan and Korea and groups of countries through ASEAN and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

The 2014 China-Australia Free Trade Agreement alone has seen two-way trade in goods and services increase by 42 per cent to reach a record high of $215 billion in 2018, making Australia the seventh largest source of imports to China.

Last week in Europe, Prime Minister Scott Morrison was correct to describe the global state of affairs as both a “history lesson” and in a “new phase”.

In advocating for a new global trading framework, the PM highlighted that for Australia to maintain its winning position on the league tables for uninterrupted economic growth, activity and reform will need to be at the forefront, internationally as much as it must be domestically.

Dean Smith is a Liberal senator and chief government whip in the Senate. First published on 2 September 2019. Reprinted with permission.

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