Australia, explained.
Tariffs have been a constant feature of world trade (Getty Images)
With a change of guard in the White House, Australia could take its lead from Chifley’s art of the deal.
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US tariffs are nothing new – history should be our guideUS tariffs are nothing new – history should be our guide
America’s 47th president will be sworn in on 20 January 2025. Headlines have been loud about the potential impact of Donald Trump’s return to the White House given his promises to unleash tough tariffs as he embarks on implementing his version of US protectionism. Reports vary on how this will affect Australia. Some commentators suggest that Australia will be spared, while others warn that we cannot escape the economic fallout.
Speaking at the Next Step Global Conference in Singapore early this month, Australian Trade Minister Don Farrell reflected on the stresses already impacting the global trading system. While not referring to the potential consequences of the Trump return, he argued that countries who understand the benefits of global trade rules should “actively engage in support of the multilateral trading system with the World Trade Organisation (WTO) at its core”.
The backdrop to the Geneva negotiations was a diplomatic battleground starring the war’s victors.
As Australia puts together its post-20 January international trade policy, it could be timely to reflect on how the Australian government responded to an earlier era of US tariffs as the world emerged from an even greater stress on the global trading system – the Second World War. The 1947 negotiations in Geneva to establish the WTO’s would-be predecessor, the International Trade Organisation (ITO), one of the three post-war multilateral economic agencies agreed to at the Bretton Woods Conference in 1944, gave Australia the opportunity and the leverage to pursue its tariff reduction goals.
The backdrop to the Geneva negotiations was a diplomatic battleground starring the war’s victors. Tied up in the equivocations was the British Commonwealth’s system of preferential tariffs established in 1932 in the aftermath of the Great Depression. Under this system, Commonwealth countries such as Australia and Canada as well as British colonies enjoyed lower trade tariffs than when they traded with non-Commonwealth countries.
The United States was not happy with this arrangement in part because their biggest trading partners were the two largest Commonwealth economies: Britain and Canada. But the United Kingdom and other Commonwealth members wanted to keep the preferences at least while the United States maintained its own high tariffs.
Australian Prime Minister Ben Chifley (L), British Prime Minister Clement Attlee (second L) and Australian Foreign Minister H. V. Evatt (R) at 10 Downing Street in London, 1946 (Central Press/Hulton Archive/Getty Images)
Behind the UK’s position was the reality of its own dire economic circumstances after six years of war. Bankruptcy hovered over the country after US President Truman abruptly announced the end of Lend-Lease, a grant agreement for war equipment that the United States had provided the United Kingdom; Truman demanded payment instead. To deal with this crisis, Prime Minister Clement Attlee sent British economist John Maynard Keynes to Washington to negotiate a multi-billion-dollar grant from the US government. After three months, he returned with a standard business loan instead of a grant. But it was substantial. At US$4.34 billion, it was double the size of the then British economy.
For Australia, a prosperous Britain was highly desirable. The United Kingdom was its biggest market. But the onerous loan conditions negotiated by Keynes included the elimination of the Commonwealth tariff preferences. Australia realised that this could be a sticking point at the Geneva conference. Losing the trade preferences could put the United Kingdom in an uncompetitive trading position, eroding further its already bad economic position.
Herbert Vere Evatt – Doc Evatt – was Australia’s foreign minister at the time. His views highlighted the dilemma facing Australia at the end of the war. Its trade and monetary arrangements were bound to Britain and the Commonwealth. But Prime Minister Ben Chifley, Evatt, and Director-General of the Department of Post-War Reconstruction H.C. “Nugget” Coombs saw the advantages to Australia of the multilateral trading system being pushed by the United States.
Internationally, Australia was tied to the British Commonwealth’s system of preferential tariffs.
However, there were substantial domestic and international obstacles standing in Australia’s way. Domestically, there were restrictions on the import of US-manufactured goods. Internationally, Australia was tied to the British Commonwealth’s system of preferential tariffs. On top of that, it also had a Lend-Lease arrangement with the United States. And just as Truman had abruptly terminated the agreement with the United Kingdom, he did the same with Australia just days after the Japanese surrender. But Chifley was able to negotiate the US demand down from US$100 million to US$27 million. He also agreed that Australia would participate in an international trade conference. However, he was not prepared to make any commitment on its outcome.
A big influence on the Chifley government’s approach to the trade and employment conference was Nugget Coombs. As leader of the Australian delegation in Geneva, he negotiated hard with the United States to achieve more favourable bilateral trading conditions. But he had a tough job. On the eve of the conference, the US Congress had increased even further the import costs on Australian wool. Coombs made it clear to the US delegation that Australia was not happy and let it be known that there was a strong possibility that the delegation would be withdrawn from the ITO negotiations.
The Chifley government remained firm in its conviction that acceptance of international tariff agreements and the proposed ITO charter rested on the United States making substantial concessions on wool. Coombs was instructed to make this very clear in Geneva.
As the bilateral talks dragged on in the margins of the multilateral negotiations, US President Truman sent a shockwave through Congress and a bolt of relief through the Australian government by vetoing on June 27 legislation that would approve additional import charges on Australian wool. He was clear in his rationale, seeing additional barriers to wool imports as undermining US leadership in world affairs. Instead, the US wool industry was to be supported through subsidy. But that still wasn’t enough for the Australian government. Coombs’ recommendations for compromise were unacceptable to Chifley.
Coombs found the US negotiators even more disappointed than he was by the Australian government’s continued tough line. But it turned out that Chifley was right. The Americans needed Australia on their side and were prepared to make further concessions.
Despite the eventual demise of the ITO dream when the US government refused to ratify its charter, Australia had achieved its bilateral objectives. And that achievement hadn’t dimmed its international credentials – Nugget Coombs, who had impressed the international community with his intellect and leadership through the protracted ITO negotiations, was singled out to be the inaugural director-general of the ITO.
Annmaree O’Keeffe’s latest book, First Cracks, tells the story of her mother who was a member of the Australian international delegations reshaping the post-war global trading framework.
About the author
Annmaree O’Keeffe
Annmaree O’Keeffe AM is a Nonresident Fellow at the Lowy Institute.
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