Trade liberalisation can be defined as the progressive removal of tariffs, quotas and subsidies. There is a general consensus among economists that trade liberalisation has been beneficial for the Australian economy. As Adam Smith showed, the gains from specialising in one's comparative advantage and buying from abroad that which cannot be produced cheaply locally, outweigh any temporary job losses.
Two factors were responsible for bringing about tariff reductions in Australia. First, the inflationary pressures produced by Keynesian government intervention forced the Whitlam Government to cut tariffs by 25% in 1973. Although unions lobbied to reverse the changes or offset their impact, tariffs never returned to the high levels of the 1960s.
Second, Australia's declining productivity levels in comparison with other developed nations placed pressure on policymakers to dismantle Prime Minister McEwen's notion of "protection all round", the rationale being that exposing firms to competition would lead to an efficient allocation of resources and improve external stability.
Further dismantling of "the Australian settlement" came with the tariff cuts in 1988 and 1991. Despite being elected on a social democratic platform, sluggish economic growth and declining real incomes led Prime Minister Hawke to implement phased automobile tariff cuts. By the early 1990s all manufacturing tariffs had been reduced to a maximum of 15%. Barriers to aviation markets, as well as quotas on textile and manufacturing imports, were also gradually removed. The starkest illustration of the scale of reforms is the decline in government revenue formerly sourced from tariffs.
The Productivity Commission was most influential in advocating a reduction in tariffs. As the political climate changed, the view that public opinion was supportive of protectionism was challenged. Andrew Norton points to a 1997 Morgan Poll that found a majority of respondents agreed lowering tariffs would encourage industries to become more competitive. With public opinion seemingly onside, the Howard Government committed itself to the 1994 Bogor Declaration on free trade, continuing the process of lowering effective average rates of assistance.