Has Australia turned its back on free trade?

WRITTEN BY MELISSA CONLEY TYLER AND VIET DUNG TRINH

11 March 2025

Australia has long been known for its commitment to free trade and open markets. However, the passing of the Future Made in Australia Act at the end of 2024 is set to bring about significant shifts in the country's economy, with a focus on reducing greenhouse gas emissions and promoting sustainable development. With production tax credits for hydrogen and critical minerals passed into law last month, Australia’s focus on targeted investments and promoting domestic industries looks more similar to those countries it accused of trade protectionism. Is Australia changing its spots? And why?

A Future Made in Australia strategy has been promoted as a way to lay the groundwork for the country’s brighter future by supporting a shift to a net-zero economy. The plan allocates a package of USD 14 billion to important areas such as skills and training to build Australia’s workforce, renewable energy, supporting investment in Australia, technological and industrial renovation, and utilisation of natural resources and critical minerals.

By balancing domestic production and free trade, the Future Made in Australia Act aims to promote economic growth, create jobs, and support Australia's transition to a net-zero emissions economy.

The plan aims to provide economic security by adding value to Australia’s natural resources and drawing in investment to position Australia as a leader in renewable energy. Applying green technology to establish competitive new sectors aims to enable Australia to produce more goods domestically, resulting in the creation of more employment and opportunities nationwide. With the future of the global economy set to be shaped by clean energy industries, Future Made in Australia promotes the vision that Australia can become a vital part of the global net zero economy thanks to its huge reserves of natural resources, critical minerals, and skilled workforce. It is also an important step for a country that has been criticised for its reliance on fossil fuels, particularly by its Pacific neighbours.

Why this change in thinking?

This is a significant ideological shift from the thinking of Australia’s parties of government in recent decades, with a focus on open trade. There is an emerging consensus that Australia’s continued prosperity, as well as its security and strategic interests, require more active guidance in the market. In the case of the Future Made in Australia strategy, this means direct government investment — including in skills and training, renewable energy and science — and tax incentives to expedite development. Importantly, the focus is on new industries rather than shoring up old ones.

It is an example of how the traditional division between economy and security is now blurring. A new era of great power strategic competition — coupled with the threat of climate change — is leading to a rethink in how states understand their security. National security is no longer conceived as simply a matter for defence departments but a whole-of-nation concern that sees strategic industries, innovation, and secure supply chains as critical components. In this paradigm, the economy and trade also become new fronts for national security.

Today, economic statecraft is practised in an economically integrated world. As production and supply chains have become more transnational, economic interests and policy frameworks have become more interconnected and complex. This has created new tools for economic statecraft and new vulnerabilities for states without great economic power. In the age of globalisation, economic statecraft has also become a means through which states advance their strategic interests, expand their influence and even coerce the policy decisions of other countries. This is exemplified by China’s economic expansion in Pacific Island countries through aid and investments and trade restrictions on Australian goods due to a bilateral diplomatic rift during the COVID-19 pandemic.

The concept of “domestically-oriented economic statecraft” involves promoting policies intended to strengthen specific domestic industries for geostrategic purposes, such as artificial intelligence or green energy technology. The objective behind strengthening these industries is to specifically outmanoeuvre or ‘outflank’ an identified geoeconomic or geostrategic rival. Australia’s plan follows similar measures in the United States, Japan, South Korea, Canada, and the European Union, seeking to localise research, technology, and manufacturing in select industries. These measures are designed to not only promote long-term economic stability and resilience but to counteract China’s economic power in specific strategic industries, diversifying trading partners and limiting the reliance on one single market.

Australia’s plan is designed to compete with industry incentives offered by other countries and nurture the development of new industries primarily centred around the sustainable energy transition. It not only seeks to promote the transition to a green energy future but also aims to address security concerns that have emerged because of the concentration of renewable technology in China, as well as the new strategic contest over energy. By investing in critical technologies and industries, such as renewable energy, energy storage and advanced manufacturing, the Act seeks to reduce Australia's dependence on Chinese imports. The Act also encourages businesses to diversify their supply chains and trade diversification more broadly to reduce reliance on any single market or supplier. By balancing domestic production and free trade, the Future Made in Australia Act aims to promote economic growth, create jobs, and support Australia's transition to a net-zero emissions economy.

Australia still sees the importance of open trade

It would be a mistake to see this as a wholesale retreat from free trade. A report by the Asia-Pacific Development, Diplomacy & Defence Dialogue (AP4D), based on consultations with 40 experts from Australia and across the region, shows a desire to strike the right balance. This means allowing the market to function freely without undue government interference but ensuring issues of national interest, such as security, are appropriately accommodated. This requires walking a fine line.

The open global trading system is a powerful counter to attempted economic coercion. Open global markets allow industries that have been targeted to seek out alternate markets for their goods or services. When Australia faced trade restrictions due to the diplomatic rift between Beijing and Canberra, Australia was able to diversify targeted commodities, redirecting them to other markets. For example, Australian exports to Indonesia and Vietnam showed more than a two-fold increase, while the corresponding figures to Japan, South Korea, Taiwan, and India doubled. Australian coal exports to Japan and South Korea grew to USD 17 billion and USD 17.2 billion, respectively. Overall, the 10 largest Asian economies purchased 80 per cent more Australian products than China did.

Promoting and advancing a transparent, predictable and rules-based global trading system will remain an Australian national interest. However, Australia is also pragmatic. Donald Trump’s return to the White House may see the world’s two largest economies both becoming revisionist actors with a shared disdain for free trade and liberal norms. In Treasurer Jim Chalmers’ words, “it would be preposterously self-defeating to leave our policies unchanged in the face of all this industry policy taking shape and taking hold around us”. At the beginning of February 2025, just less than two weeks after he took office, President Trump imposed a 10 per cent tariff on Chinese goods. China imposed “tit for tat” measures against the US, kicking off a new trade war.

While not walking away from free trade, a Future Made in Australia reflects the reality of Australia’s position in an unpredictable geopolitical context and its desire to become a crucial part of the global net zero economy.

DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform.

Author biography

Melissa Conley Tyler is the Executive Director of Asia-Pacific Development, Diplomacy & Defence Dialogue (AP4D).

Viet Dung Trinh is a PhD candidate at the University of Queensland and an intern at AP4D. Image credit: Flickr/Jeremy Buckingham.