A split has emerged within the Australian government, with members of the junior Coalition partner pushing protectionist policies as a way of “fighting fire with fire” in the trade war with China.
National party MPs have called on the government to consider imposing tariffs and expanding subsidies to protect domestic manufacturers, but Liberal backbenchers told Guardian Australia on Tuesday it would be against the national interest to abandon free and open trade.
The Liberal industry minister, Karen Andrews, said the federal government would follow “our international obligations”.
The Queensland Nationals senator, Matt Canavan, who is spearheading the push for a new approach, has acknowledged that some of the ideas “challenge the long-held belief that Australia should keep the faith with international trading rules”.
But he argued other countries, including China, were increasingly flouting the rules with heavy subsidies for domestic producers.
It was “not healthy for China to have such a dominant position” in so many key global commodities, including steel, copper, aluminium and rare earths, according to a Nationals backbench policy committee paper published on Canavan’s website on Tuesday.
The document calls for “brave policies” that challenge the economic consensus of the past few decades. While Australia should “not return to the policies of ‘protection all around’ of the 1960s”, it should be prepared to walk away from “the economic rationalist policies of the 1980s”.
The document urges the government to ramp up domestic subsidies for manufacturing, favour local suppliers as part of a new “Buy Australian Act”, and order an investigation into subsidies provided by other countries in key strategic sectors.
The proposed investigation by Australia’s Anti-Dumping Commission would give the federal government evidence to take “direct, protective action to support the development of home-grown businesses in these strategic sectors” – which could include tariffs on imports of those products.
“Given that some of these subsidies may restrict Australia’s ability to export to other markets, these investigations may also provide weight for the need to provide like for like subsidies to Australian industries,” the document states.
“Unless we are prepared to fight fire with fire, we are unlikely to grow strategic industries in the face of the massive subsidies that other countries continue to provide.”
The document suggests Australia follow the example of the US, which “has achieved a remarkable resurgence in manufacturing off the back of low energy prices and the reintroduction of some protective measures” – an apparent reference to controversial tariffs imposed by the former Trump administration.
The federal Nationals leader, Michael McCormack, said he welcomed the contribution from his party colleagues and he looked forward to discussing the matters raised “with colleagues in government soon”.
“This document highlights the feedback we have been receiving from our grassroots membership about the need for Australia to build domestic supply capabilities in some areas,” McCormack said.
But NSW Liberal senator Andrew Bragg said it was “not in Australia’s interest to pursue protectionism”.
“We don’t support protectionism. We’re the 12th largest economy on Earth with a small population base because we’ve been nimble and canny traders – and most of all because we’ve been efficient and unsubsidised,” Bragg said.
“The Trump administration toyed with tariffs but the US economy is far less trade-exposed than Australia … We really can’t afford to play games with protectionism.”
Dave Sharma, the Liberal MP for the Sydney seat of Wentworth and a former Australian ambassador to Israel, said protectionism had “never served our country well”.
“Australia has become a prosperous and generous country through open and non-discriminatory trade,” Sharma said. “For a nation with a small population and geographically remote, free and open trade has allowed us to build the modern economy and society we have today.”
Andrews, the industry minister and a Gold Coast-based Liberal MP, said the government had already announced a $1.5bn modern manufacturing strategy.
She argued making manufacturers more competitive and resilient “requires more than just reducing energy costs”.
Without addressing the specific proposals on protecting domestic industries, Andrews said the Coalition government had always supported “a robust and independent anti-dumping system”.
“Our system is similar to many of our key trading partners and ensures Australian industry can compete on an even playing field, while remaining consistent with our international obligations,” Andrews said.
The Nationals’ backbench policy document also revives the party’s calls for coal-fired power stations to be built with government support.
It says while the Nationals still want a coal-fired power station to be built at Collinsville in north Queensland, the government should also support a new one in New South Wales’s Hunter Valley.
Bragg said Australia was “past the point of having this ideological discussion around energy”. Australia was on a pathway of transition towards a cleaner, renewables future, which would include more gas and less coal, he said.
“At the end of the day, if a private business doesn’t want to build a coal-fired plant, why on earth would the commonwealth?”
The resource minister, Keith Pitt, who is a Queensland Nationals MP, said he supported the use of Australian resources, be it coal or gas, to provide reliable and affordable electricity.
“Boosting supply will help lower prices and support domestic manufacturing,” Pitt said.
The Nationals’ document has been published just days after the new trade minister, Dan Tehan, indicated he would take “a very principled approach” to trade liberalisation.
Tehan, a Liberal from regional Victoria, said in an interview last week: “We have to ensure that everything we do upholds our commitment to comprehensive trade and investment liberalisation and also protects the national interest.”
Tehan vowed to push for dialogue with China to resolve trade tensions, while also pledging to pursue reform of the World Trade Organization so that it could “again advance the trade and investment liberalisation cause”.
The Chinese president, Xi Jinping, used a speech to a virtual World Economic Forum event on Monday to argue the pandemic should not be used as an excuse to reverse globalisation in favour of “decoupling and seclusion”.