Free trade has long been one of the most widely accepted ideas in economics. The logic is compelling: countries specialise in what they do best, trade with one another, and everyone is better off through lower prices and greater efficiency.
For decades, this framework has served Australia well. But in a more uncertain world, marked by geopolitical tensions, fragile supply chains, and concerns about national security, do we need to ask whether we’ve gone too far?
In the latest episode of the Economics Explored podcast (video version below), Adept Economics Director Gene Tunny explore this question with John Humphreys, Chief Economist at the Australian Taxpayers’ Alliance and Dan Ryan of the National Conservative Institute of Australia. The video is an excerpt from the 16 April ATA livestream.
Economists support free trade for good reason. It allows countries to exploit comparative advantage, leading to more efficient production and higher living standards. Consumers benefit from access to cheaper and a wider variety of goods, and businesses gain from larger markets and more competition.
Historically, trade liberalisation has been associated with strong economic growth, both globally and in Australia. It has helped reduce costs, improve productivity, and lift real incomes. For example, Wacziarg, R. and Welch, K. (2008), using within-country evidence over several decades, found that trade liberalisation is associated with statistically significant increases in economic growth, investment, and trade openness, although outcomes vary considerably depending on institutional and macroeconomic conditions.
That remains the starting point for any discussion.
However, the world has changed.
Recent shocks, from the COVID-19 pandemic to recent geopolitical tensions, have exposed vulnerabilities in global supply chains. There is growing concern about over-reliance on foreign producers for essential goods such as fuel and fertiliser.
This has led to a shift in thinking. Policymakers are increasingly asking not just “What is cheapest?” but also “What happens if supply is disrupted?”
In other words, the focus is shifting from pure efficiency to resilience, although many economists would argue that free markets are the best way to guarantee resilience in the long run.
Dan Ryan argues that Australia has allowed too much of its industrial base to move offshore. From this perspective, free trade has contributed to deindustrialisation and left the country exposed.
Tariffs and other trade measures, it is argued, could help rebuild domestic manufacturing and ensure a degree of economic sovereignty. There is also a broader point: markets may not fully account for national security risks or the value of self-sufficiency in critical industries.
These arguments are gaining traction internationally, particularly as countries reassess their economic relationships in a more contested geopolitical environment.
At the same time, there are strong reasons for caution.
Tariffs are, in effect, taxes on imports. They raise prices for consumers and businesses, and they tend to reduce economic efficiency. History provides many examples in which protectionist policies led to higher costs and the entrenchment of inefficient industries. For example, in Latin America, import substitution industrialisation (ISI), notably in countries such as Argentina, Brazil, and Mexico from the 1950s to 1960s, used high tariffs, quotas, and state intervention to replace imports with domestic production, often resulting in lower productivity, worsened competitiveness, and slower long-term economic growth (Baer W., 1972).
There is also a risk that once protection is introduced, it becomes difficult to remove. Industries that benefit from tariffs often lobby to keep them, even when the original justification no longer applies.
While national security considerations may justify some intervention, there is a danger that this argument is overused.
It’s important to recognise that trade is not the only driver of deindustrialisation.
Technological change, particularly automation, has reduced the demand for labour in manufacturing. At the same time, energy costs and domestic policy settings also affect competitiveness.
Even with higher tariffs, it is unlikely that we would see a return to the manufacturing employment levels of previous decades. The structure of advanced economies has shifted toward services, and that trend is unlikely to reverse.
So where does this leave us?
There may be a case for targeted intervention in specific areas, particularly where there are clear national security concerns. This could include ensuring domestic capability in critical industries or diversifying supply chains.
However, any such measures should be carefully designed, transparent, and based on strong evidence. Broad-based protectionism would come at a high economic cost.
Ultimately, this is about trade-offs. Greater resilience and security may require accepting higher costs. The challenge for policymakers is to strike the right balance—without undermining the substantial benefits that free trade has delivered.
The debate over free trade is not going away. As the global environment becomes more uncertain, these questions will only become more pressing.
The key is to approach them with clear thinking, a recognition of trade-offs, and a willingness to engage with different perspectives.
What do you think: have we gone too far on free trade, or are the benefits still overwhelmingly in its favour?