Which States Gained, and Which States Lost, from Australia’s Federation Customs Union of 1902? The Answers of a Theoretical Schema, with an Empirical Check

The passage of the Customs Tariff Act of 1902, in the wake of Australian Federation of 1901, simultaneously abolished tariffs on intra-Australian trade, while establishing a tariff wall around the whole of Australia with respect international trade. What were the effects of the establishment of this two pronged trade regimen? Did it benefit each state, as presumably, the earnest Federationist believed? Or did it benefit some states at the expense of the others? The paper uses a simple schematisation of the Australian economy at the beginning of the 20th c to advance some answers. The paper’s schematisation suggests Victoria would have benefitted from the new trade regimen, in consequence of higher prices received for her manufactured exports. And NSW would be worse off, because of the higher prices paid for her imports of manufactures. The model makes no clear cut prediction of the welfare impact on the four smaller states, but identifies some factors which govern whether the impact will be favourable or unfavourable. Finally, the model allows the possibility that NSW may not have been injured, as the rise in price in manufactures might have been large enough to transform NSW into an exporter of manufacturers, and thus ‘another Victoria’. The likelihood of this possibility is a different question. The analysis’ predictions are shown to survive one simple empirical check. The paper concludes by demonstrating that the implications of the analysis are relatively robust to variation in the assumptions made.