My dear Prime Minister,

BRITISH TRADE AND THE AUSTRALIAN TARIFF

In your letter of the 21st of April you mentioned that you thought
that the effect of the Australian tariff on British trade had
never been properly analysed or considered. [1] I gathered from
your letter that you were putting one of your young men on to this
subject in Melbourne but I thought that you would probably find it
useful if, from this end, we also tackled the subject. There have
been many delays owing to the extreme pressure of work in June and
July. It is only now, in the comparative calm of August, that it
has been possible to get to grips with the subject.

I am by this mail forwarding a rather comprehensive memorandum
which has been prepared here. The statistical tables look
extremely formidable. As your time is both limited and precious, I
have also had a series of graphs made which illustrate the tables
and on which I will comment in this letter. I think perhaps that
if you read the memorandum which covers the statistical tables and
then, if you think it worth while, pass the document over to
whoever you have working on the subject in Melbourne, this may
tend to accelerate the information which you have in mind.

Speaking quite generally, the effect of this scrutiny is
depressing so far as British trade is concerned. The fact that
since 1913 Australia has increased her share of the total British
exports from 6% to over 9% is only in a small part due to
increased takings by Australia of British goods but is, in the
main, due to the very serious and prolonged depression British
trade.

You will find in the memorandum that I have discussed at
considerable length the effect of the Australian tariff on various
classes of British goods. I do not think there can be any doubt
that your main contention is sound, although I rather hesitate to
agree with one sentence in your letter that the fostering of
secondary industries in Australia necessarily increases the
purchasing power of the Australian community. I think this is the
case when the secondary industry encouraged is one which really
adds to the national wealth but there have been, I think, many
examples where Australian secondary industries have, by increasing
the cost of a whole range of allied goods, increased the cost of
living and probably decreased the purchasing power.

In Graph 1

Total British exports to Australia are shown as a percentage of
(a) total Australian imports (b) total British exports. In the
former case there is a fall from 51% to 43% and in the latter a
rise from 5% to 9.5%.

Page 9 of my memorandum shows that, at 1913 price levels,
Australia in 1926 only took 1,000,000 more British goods than in
1913 but the fact that so small a rise allows Australia to claim
an increase of 3.5% of the total British exports shows in the
clearest way the profundity of the British export trade
depression. The world's population is estimated at 1,400,000,000
yet Australia with 6,000,000 takes nearly 10% of all that Great
Britain sells overseas and if manufactured goods alone are
considered, takes over 10% of the total.

Graph 2 deals with the cotton piece goods trade. It is not a very
striking production. The latest British trade returns make,
however, very interesting reading. For the first seven months of
1927, Australia became the second market in the world for
Lancashire's main export, taking 109 million square yards, which
is 23 millions more than the third customer-Egypt. China
(including Hong Kong), normally the second market, has fallen to
seventh place with a yardage purchase only a little over half that
of Australia.

Graphs 6 & 7 refer to iron and steel items and these items are of
especial interest and should be looked at in the statistical
tables attached to my memorandum because here you can see the
effect of a change from free entry to protection and preference
with a resultant great advantage to British industry.

The 1927 figures show a marked increase in many items of British
iron and steel exports to Australia.

Graph 9 shows British paper exports to Australia. The 1927 figures
show that so far the Canadian treaty has not severely affected the
British paper exports to Australia. The month of July does,
however, show a pretty severe drop, which may have some
significance.

Graph 10 illustrates motor chassis exports and is remarkably
interesting. It was probably impossible to anticipate that the
rate of progress made by the British motor manufacturers in the
last twelve months would be continuous. July 1927 has been the
first month to show a severe slacking of progress. In July 1927
less British motor chassis were exported to Australia than in July
1925 and only a third of the quantity exported in July 1926.

However, the total number of light motor chassis exported for the
seven months January-July is satisfactory, the figures being as
follows:-

1925 1926 1927

Jan. to July 2190 5956 9874

I hope you will find the memorandum, tables and graphs are a
useful contribution to the general subject of the Australian
Tariff and British trade.

In some degree they support my general contention that Australia
having a primary (protective) and a secondary (preferential)
purpose in her tariff has, in many cases, been more successful in
her secondary than in her primary intention. It would be of first
class importance if we could discover how far the indiscriminate
protection of unsuitable secondary industries has checked the
development of those which are really suitable.

Consideration of such a point might result in your feeling that
Alexander's [2] suggestion was worth the attention of the Imperial
Conference of 1929!

Yours sincerely,
F. L. MCDOUGALL