My dear Prime Minister,

THE VALUE OF AUSTRALIAN PREFERENCE TO GREAT BRITAIN

I cannot help feeling that the reaction in Australia against the
blind acceptance of the Protectionist point of view has tended to
cause a belittling of the real advantages conferred upon Great
Britain by the Australian preferential tariff. This feeling is
intensified when I read paragraph 92 of the report on the Tariff
[1], Simpson [2] having sent me that section from the page proof.

The paragraph is headed 'The costs of Preference to United Kingdom
Products', and had the argument been restricted to the
consideration of what Preference costs Australia I might have had
little to say, but the paragraph reads mainly as an estimate of
the value of British preference. [3]

I particularly ask you to consider this sentence: 'Where
practically all the trade in any item of goods is preferential,
the value of the preference is small and may be neglected'. This
statement I frankly regard as a splendid example of a priori
reasoning, and of the typical attitude of academic economists in
their neglect of facts. It sounds perfectly logical, and will
undoubtedly be accepted by many as the truth, but facts simply
prove that it is unsound. The statement is mildly qualified later
in the paragraph, but ineffectively. The sound statement would
have been 'Where British goods experience little or no effective
competition in world markets the value of preference is small and
may be neglected'. I will illustrate my point by reference to
certain items in which Great Britain holds a very high percentage
of Australia's imports, but where she encounters severe
competition in foreign markets. In electric wires and cables Great
Britain holds 95% of Australian imports, but only 40% in
Argentina, 4% in Denmark and 3.6% in Holland; of telephones 75% in
Australia, 30% in Argentina and 24% in Holland. In cotton piece
goods Great Britain holds a predominant position in Australia, but
is encountering extremely severe competition in other markets; the
same remarks apply to many items of iron and steel, galvanized
sheets, in which Great Britain holds 99% of the Australian
imports, and only a negligible share of those into Argentina, is a
particularly interesting instance. In the case of news print Great
Britain held in 1927 84.2% of the Australian imports, and probably
would not have sold a ton save for the preferential duty. These
examples might be greatly extended. I agree that the figure of
8,000,000 as the value of Australian preference to Great Britain
cannot be substantiated, but I am certain that 8,000,000 is far
nearer the mark than the 1,000,000 given by the economists.

I will not further labour the point, but I do most devoutly hope
that you will not give your support to this statement. Already it
is certain to cause much misunderstanding, and will be quoted over
here by Free Traders with unholy relish. I shall continue
laboriously to ascertain the degree of competition which British
goods face in World markets, for that I feel convinced is the only
safe way of forming a sound appreciation of the value to Great
Britain of the shelter afforded in the Australian market by the
combination of tariff, administrative and voluntary Preference.

Yours sincerely,
F. L. MCDOUGALL