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Australia used to be one of the highly protectionist countries as the gov't found it necessary to protect Australian manufacturers, who found it hard to compete because of the relatively small population and low production runs. Australia's current policies affect firms, individuals and governments in both positive and negative ways. Actions taken by other countries and international organisation, which affect world trade have implications on the Australian economy.

In the late 1980s Australia started to phase out all tariffs. Australia is in the transition from a highly protected to an open economy. It started in 1975 by the Whitlam gov't by a 25% tariff cut. Again in 1988 the Hawke gov't initiated tariff reductions. In the 1988 Economic Statement it stated that tariffs were to be phased out gradually. The 1991 Industry Statement stated that most tariffs be reduced by 25% by 1996. Quotas abolished and tariffs cut to 15% for cars by 2000. This plan didn't go beyond 2000 so the Howard gov't froze all tariffs for cars, the textile, clothing and footwear industries between 2000 and 2005, after this tariff will be reduced drastically. Due to Australia's commitment to the APEC forum we have a duty to reduce all tariffs to zero by 2010. Australia's reduction in protection levels have gone will beyond the required level by international agreements.

Australia's decision to abandon protectionism led to structural changes in the economy in recent decades affecting firms, individuals and governments. Reduction in the level of protection may be beneficial in the long run but firms operating in marginal import competing industries shrink unless they improve their competitiveness. Some firms are forced to restructures in an aim to stay in business and focus on a particular aspect of the production in which they have a comparative advantage. Removal of protection levels forces local businesses to compete on a world stage and develop innovation and efficiency. This results in higher levels of investment as Australian businesses invest in improving their technology or expanding their business. Reductions in protection levels along with microeconomic reforms have contributed to the overall diversification of Australia's export base and a significant growth in manufacturing exports.

Like firms, individuals also experience substantial dislocation due to reduced protection levels through the increase in unemployment due to restructuring of firms. Import-competing industries

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