A Modest Member of Parliament [Bert Kelly], “Tariffs — no such thing as a free feed,” The Australian Financial Review, November 12, 1976, p. 3. Reprinted in Economics Made Easy (Adelaide: Brolga Books, 1982), pp. 44-46, as “Tariffs paid by Exporters (2).” [“Tariffs paid by Exporters (1)” here.]

When I am talking to secondary industry leaders, I find it hard to convince them that the cost of tariff protection is borne by exporters.

Most of them are too well-educated these days to believe, as did many once, that tariff protection is costless; that there is indeed such a thing as a free feed.

But many of them think that the costs of tariffs is carried by the community in general and not by the exporter in particular, as Eccles claims.

Indeed, they sometimes get quite hurt when I protest that my exporter farmers are not in a position to carry any extra burdens.

“Of course not. We wouldn’t dream of asking them to, my dear fellow,” some of them say. “The tariff cost is carried by everyone. The claim that the exporter pays is only an Eccles theory — it’s only an academic argument.”

And they usually round off their protestations by claiming that they understand the farmers’ point of view because they either have a farm of their own, or have an uncle who is a farmer, and they used to go there for their school holidays.

I have even seen them doing a bit of furtive dabbing of eyes with handkerchiefs to demonstrate their earnest attachment to the man on the land.

These industry leaders were so eloquent about their regard for farmers and so certain that it is only an Eccles theory that the exporter carries the tariff burden alone, that I became a bit uncertain and went to find someone who would confirm what Eccles says.

The first person I met was Fred. No one can claim that Fred is a theoretical academic living in an ivory tower.

When I asked him whether he thought Eccles was right, his response was quick and angry. He snapped:

I’m not certain if Eccles is right or not, but one thing I do know and that is I am going broke.

And it’s not because the price of what I produce is falling but because my costs of production are increasing all the time. And as the tariff increases these costs, then I guess that because I am an exporter I am carrying my share of the tariff burden.

But go and talk to some other economist, not Eccles, he gives me a pain in the neck.

So I went to the library and read again the Brigden Report1 which, way back in 1929, spelt out the effect of tariff protection. The Committee’s conclusions are summarised in one of the standard economic textbooks written by Samuelson, Hancock and Wallace. I quote:

The Committee undertook the important task of tracing out the effects of the tariff on prices and costs. It recognised that the “direct” effect on prices generated a series of “secondary” effects, as different groups adjusted their prices and incomes.

By comparing actual and free-trade prices, it estimated the excess cost of protection at £36 million. [This was 1929.] It was unlikely that this burden rested on wage-earners: the adjustment of wages for changes in the cost of living meant that higher prices for wage-earners were passed on to employers. But employers in turn protected themselves by raising prices. Where, then, did the burden come to rest?

The Committee’s answer to this question was that the burden was borne mainly by those who could not adjust their charges so as to escape it.

These producers were to be found in the “unsheltered” industries, i.e. those exposed to the full force of foreign competition. The most important by far were the primary-producing export industries.

So it isn’t just an Eccles theory. The awful truth is that the tariff burden is indeed carried by exporters. Be they rural, mining or secondary industry exporters, they pay the estimated $4,000 million annual consumer subsidy inherent in tariff protection.

It may be that mining and secondary industry exporters are able to carry their share of this burden. But they should be warned that it is likely that they will have to carry the farmers’ share of the burden also, because as the Bureau of Agricultural Economics points out, the farmer’s real income is decreasing by at least 20 per cent per year.

And if this continues (as seems likely) then the others, the miners and the secondary industry exporters, will have to pick up and carry our load also when we cannot carry it any longer.

Eccles says that secondary industry leaders are not the only ones who labour under the delusion that the cost of the tariff is borne by the community in general and not by the exporters in particular.

He thinks that some politicians seem to think so too.

That explains the apparent indifference of the National Country Party members to the tariff problem.

Footnote

  1. Brigden, J. B. and others, The Australian Tariff, An Economic Enquiry, Melbourne University Press, 1929.