Tariffs are Twaddle

Thanks to our ability to freely import cars without high tariffs many families don't give a second thought to buying a second car, TLN Executive Director, Suse Reynolds told an Export New Zealand audience in Auckland today.

Reynolds took the opportunity to remind New Zealanders why we do not need tariffs.

"An open market to imports helps business retain its competitive edge, gives clear signals about where the best profits can be made and gives New Zealanders access to cutting edge technology and cost effective inputs," said Reynolds.

"Tariffs and other industry protection do not create jobs but stifle their creation. Imports create better jobs."

While not diminishing the pain of job loss, Reynolds said removing industry protection did initially displace workers but the number of jobs in an economy, and its ability to replace those lost, is determined by monetary policy, labour market flexibility and other non-trade factors. New Zealand currently had record low unemployment levels.

"New Zealand manufacturing is often cited as being particularly hard hit by the removal of tariffs and the lack of protection and support. But the fact is that in developed countries, like New Zealand, the trend is for jobs to be lost in manufacturing and created in services," Reynolds pointed out.

UK statistics show that between 1970 and 2000, 3.5 million jobs disappeared from the labour market but 6.4 million new jobs were created in services.

Calling for trade barriers and tariff maintenance reflected a lack of faith in New Zealanders ability to foot it in international markets said Reynolds, when in fact we are able to - across the board - in agriculture, niche manufacturing and services.

"Globalisation is not going away. If your business can not foot it without protection from the rest of the world, it will always struggle to be a success."

Reynolds said using tariffs to protect infant industries had been proven not to work. New Zealand provided some of the best examples in the car and television industries of the seventies. These were inefficient, unproductive and cost the consumer dearly.

"Those who call for protection systematically ignore the costs involved and conveniently over look who is actually paying for that protection. Industries and interests that benefit from protection are usually concentrated, organised and politically connected. In contrast those who pay the price for protection, namely consumers, but also import-using producers, are typically more dispersed and politically unorganised. As a result, their interests are discounted and ignored."

Reynolds said many still argue New Zealand should not have unilaterally removed tariffs. They maintain we lost a bargaining chip and put ourselves at an unfair disadvantage to our trading partners.

"Unfortunately, the "bargaining chip" argument does not stack up. At 0.06% of the global population and making up only 0.27% of world trade as we do, our key trading partners - the US, Japan and Europe - were never going to, for instance, lower their dairy tariffs if we lowered ours," Reynolds held.

She said that to argue that we had put ourselves at an unfair disadvantage to our trading partners by unilaterally liberalising trade assumed trade liberalisation only worked if others did it too.

"That is mercantilist and wrong. Trade liberalisation is beneficial in its own right. As Joan Robinson, the English economist, famously said, "if your trading partner throws rocks into his harbour, that is no reason to throw rocks into your own. It may sound "fair" to do so but it is downright silly - and even harmful to oneself"," Reynolds concluded.

For further information please contact Suse Reynolds on 021 490 974.