WHILE Mr. Bruce was Prime Minister of Australia he used often to say that the country's fundamental needs could be summed up in three words -- men, money, markets. Australia has to have a larger population if she is to hold her 2,970,000 square miles of territory for the white race. She must have more markets before she can hope to support a larger population. If she gets the men and the markets the money will follow.

Let us in the same way accept a schematic approach to the question of Australia's changing position in the British Commonwealth and in the Far East (which to her is the Near North). And let us, also, make our examination from three angles -- trade relationships, defense, and immigration.

I. TRADE

First, trade relationships. We in Australia have been forced to do some very hard thinking about tariffs since the so-called "trade diversion" measures were announced on May 22, 1936. The new trade policy provided for increased duties and the limitation of imports by the application of a system of licensing. As a result, some £2,299,000 worth of imports were to be diverted -- £1,310,000 to the United Kingdom, £854,000 to Australian manufacturers, and £135,000 to "good customer" countries.

One objective was to redress the trade balance. The Commonwealth has an external interest bill of some £24,000,000 annually, yet in the fiscal year 1934-35 there had been a shortage of £8,000,000 in the funds available for payment. The adverse balance with the United States had steadily increased until it was £10,000,000, a situation made inevitable by large imports of automobiles, oil and tobacco. The new tariff schedule, therefore, placed higher duties on tobacco, Oregon timber, electric refrigerators, roller ball-bearings and many other imports from America; while the number of motor chassis that were to be admitted under license was to be that of the peak year ending April 30, 1936. The Government, it was explained, was acting in no spirit of retaliation for American tariffs, but, very unwillingly, under the spur of pressing national interest. President Roosevelt replied by withdrawing from Australia the benefits of reciprocal trade treaties, on the ground that her treatment of American exports was discriminatory. It was declared in Washington that not even Germany had gone so far as Australia.

But the weight of the new policy bore chiefly upon Japan. As was explained to the House by Sir Henry Gullett, Minister for Trade Treaties, the Government had sought in vain to persuade Japan to curtail her exports of cotton and artificial silk textiles to Australia. Between 1932 and 1935 Japan had increased these exports by over one hundred million square yards at the expense of the European buyers of Australian wool, principally Great Britain. The Commonwealth Government pointed out that while in 1935 Japan had bought 26.4 percent of Australia's wool exports, the United Kingdom had bought 34.9 percent, and other countries 38.7 percent. The Government had tried, said the Minister, to persuade Japan to reduce her exports and take compensation in higher prices; but Japan had demanded 90 percent of Australia's artificial silk trade, no restriction in her cotton piece goods market (of which Japan had already captured 45 percent), and other concessions at the expense of Great Britain. The Commonwealth, therefore, had had no option but to increase substantially its duties on textiles. Actually, even the new Australian duty of ninepence a square yard was lower than the rate imposed by the United Kingdom, the United States, France and Canada. Moreover, Australia was one of the last countries to take such action. The duties, it was also pointed out, were not discriminatory but applied equally to the textiles of all foreign countries. In fact, Japan was given five months in which to negotiate before the full duties became operative. Yet Japan's reprisals were immediate and extensive. By tariff measures and by a private boycott of the wool market she practically closed her doors to Australian produce. The Commonwealth resented this action as having a clearly punitive intention and it retaliated by imposing a licensing system on about 40 percent of Japanese imports.

Throughout the controversy with Japan the Commonwealth's case was expounded with great ability by Mr. Lyons, the Prime Minister, and by Sir Henry Gullett. The United Kingdom, they pointed out, was Australia's best customer for primary products, since it took over 56 percent of our total exports, while Japan took less than 11 percent. For example, Great Britain absorbed nearly 40 percent of our wool exports, 54¾ percent of our wheat, 13¾ percent of our flour, 93 percent of our butter, 95 percent of our meat, 96 percent of our pig lead, 83¾ percent of our sugar, 85 percent of our fresh fruit, 99 percent of our eggs, and 95 percent of our wine. For every pound Japan spent in Australia the United Kingdom spent four.

The United Kingdom cannot be expected to continue this measure of preference for our products unless we give reciprocal treatment to its most important export -- textiles. Aided by low wages and currency devaluation, Japan has in recent years been exporting textiles to Australia at prices which no other country can match. Between 1932 and 1935 imports of Japanese artificial silk increased eightfold, those of cotton one and a half times. The average price per square yard of rayon fell from 8.3d to 4.8d, and that of cotton from 3.2d to 2.8d. In contrast, the price of British rayon was 14d. Furthermore, the Australian duties were not fixed but were calculated on these very low values.

Confronted with a choice between the Japanese and British export markets, how, asked Mr. Lyons, could the Government fail to decide in favor of the latter? He pointed out that under the new duties Japan would still have a third of the textile market, a reasonable enough share for any foreign country; while the new licensing system would divert to her, as a "good customer" country, the trade in certain goods which had hitherto been imported from "bad customers." In any case, the Prime Minister declared, Japan was only just beginning her attack on the Australian textile market; her real objective was to capture the remaining cotton piece goods market, worth from £3,000,000 to £4,000,000 to the United Kingdom. This could not be surrendered without destroying our high wage standards and the Ottawa Agreement. Japan must therefore withdraw her cheap textiles and restrict her competition to goods compatible in quality and price with Australian standards of living.

Such was the case for the new tariff as argued by those who repose their hopes in trade within the British Empire along the lines laid down at Ottawa. But the problem has another aspect. If we are determined to check imports of Japanese textiles, how can we hold our rapidly growing market in Japan for wool? In 1935 we exported £12,000,000 worth of wool to Japan. For some time she has been our second best wool customer and in the fall of 1935 she bought more than Britain. How, again, can we continue to sell flour to Manchukuo, which last year took 250,000 of the 700,000 tons we exported?

In contrast, the exponents of what may be described as the Pacific viewpoint affirm that Australia's special function within the British Commonwealth is to express British ideals and British interests in the Pacific basin, and that if she is to do this she must make a thoroughgoing readjustment of her general policy. She must find a modus vivendi with the nations bordering the Pacific, especially Japan and the United States. And how do this better, they ask, than through improving trade relations? The mischief of the new tariff, say these critics, lay not only in its subject matter, but even more in the manner of its introduction, for it represented a complete repudiation of all that had gone immediately before. What about the exchange of good-will missions with Japan and the appointment of Trade Commissioners throughout the Near North, all the way from the Dutch East Indies to Tokyo? Was not the obvious implication of these actions that Australia intended to do more business with her Pacific neighbors? Even as late as October 1933 the Commonwealth had lowered the tariff on Japanese goods in order to compensate for the depreciation of the yen. Was it not natural, then, for Japan to become angry when Australia's trade diversion policy fell on her like a bolt from the blue?

Nor were the opponents of the new tariff convinced of the wisdom of the Ottawa policy with which it was bound up. They think that the Ottawa Agreement makes the Empire more vulnerable both internally and externally: internally, because the controversies to which they inevitably give rise will strain the bonds of Empire to the breaking point; externally, because the surest way for Australia to arouse the hostility of her Pacific neighbors is for her to join in putting a high fence around the Empire. We have moved a long way, they point out, from the time when the United Kingdom furnished Australia with all her manufactured goods and when the latter was content merely to be an exporter of primary products in exchange. Today, we ourselves are supplying an increasing proportion of the manufactures we need, and a continued extension of this policy is obviously essential for the support of a larger population; for there is a limit to the number of new settlers which our land resources can accommodate. On the other hand, we must continue to be one of the world's chief exporters of such commodities as wool, wheat and butter, for the export of these products makes possible the high economic standards we have established through tariffs and wage-fixing tribunals. But Australia cannot have it both ways. If she is to expand her industrial plant, she cannot take from the United Kingdom as many manufactured goods as she now does. If imports of British goods fall, however, the United Kingdom would in return have to cut her imports of primary products from Australia. The need, therefore, is to find other outlets, and the most natural outlets of all are the markets of her neighbors in the Pacific area.

Australian wool growers especially were exercised over the effect of the trade war with Japan. But the proponents of the new tariff argued throughout that the wool producers had nothing to fear. The argument was that if Japan transferred her purchases to South Africa, the pressure on that market would drive other purchasers to Australia, with the result that the market as a whole would not be affected. Despite the abstention of Japanese buyers at the sales which followed the application of the trade diversion policy, the tone of the market was exceedingly buoyant, and the optimism of the tariff-makers was amply justified by events, thanks to the patronage of English, American and European buyers. After seven months of hard bargain-driving the dispute with Japan was settled in the last week of 1936. A trade agreement with a duration of 18 months provides for the importation by Australia of 120,000,000 square yards of Japanese piece goods annually, i.e. the import figure of 1934, equally divided between cotton and rayon, compared with 153,000,000 in 1935. Japan, for her part, agreed to issue permits for the importation of 800,000 bales of wool in the period ending on June 30, 1938, or at an annual rate of 533,000 bales, compared with 750,000 in 1935. Each country immediately removed the punitive prohibitions it had imposed against the other. The new duties in Japanese textiles represent substantial reductions of the rates imposed under the trade diversion policy. The settlement is preliminary to a conference between the Japanese and Australian Governments at which a basis of general understanding will, it is hoped, be laid.

There are hopes, too, of a new agreement with the United States. Here, however, we run into the additional complication that the Australian and New Zealand Governments have threatened to apply to American ships going between British ports the same restrictions on the carriage of passengers as are now imposed on British ships between American ports. This action is primarily aimed at the Matson Line, whose vessels stop at Fiji and New Zealand on the way to Sydney. Subsidies for British liners in the Pacific are also probable in reply to the American subsidies. But we in Australia need so much from America -- her automobiles, her oil, her tobacco, and so on -- that common sense demands a compact. American purchases of Australian wool increased more than 600 percent in value in the last half of 1936 compared with the corresponding period of 1935. It is suggested that a continuance of such purchases might induce Washington to review the high duties on Australian wool. These factors strengthen the case for a trade agreement with America.

The growing uneasiness in the Federal Cabinet over the continuance of an aggressive trade diversion policy against the countries of the Pacific ended in March with Sir Henry Gullett's resignation as Minister for Trade Treaties. Negotiations for a new trade treaty with Canada reached an impasse, since the Minister insisted upon a new scale of duties replacing the existing British preferences on which the previous treaty was founded. The Cabinet refused to support the Minister; his withdrawal may lead to a general review of trade diversion policy, particularly as it applies to the United States.

II. DEFENSE

When we come to frame measures of defense we have to take account of a changing situation in the Pacific. Time was when Australia reposed reliance on the might of the British Navy. But today the naval power of Japan has immensely increased and the United Kingdom has accepted the principle of naval parity with the United States, with the result that the relative strength of the British Navy has diminished. A state of war might easily arise which would require the retention of almost the whole of the British Navy in European waters, thus leaving Australia to fend for herself. Considered from that point of view, our isolated situation seems dangerous; yet there are those who hold that the vast expanse of the southern Pacific gives us an important degree of safety, enabling us to feel fully secure from invasion with the aid of only a moderately expensive defense force. The strategic points at which a landing would be attempted are limited to the eastern coast.

Our two present aims are to maintain the Royal Australian Navy at a sufficient strength to be able to make an effective contribution to the protection of the Empire as a whole, and to provide a force capable of defending our territory against invasion. The Australian Labor Party, however, does not believe that Australian safety can be found by pursuing both these objectives. It insists that coöperation in a centralized system of imperial naval defense does not promise safety, but that the best sort of protection lies in the maintenance of land and air forces trained and equipped so that they can be quickly expanded to repel an invader before he can bring his full strength to bear. Military aviation, it holds, should be developed for reconnaissance and for subsequent coöperation with the land forces. Lastly, the Labor Party maintains, Australia should foster the production of munitions within its own boundaries and provide all the necessary equipment to make herself independent of outside sources of supply, including the production of oil from coal and of power alcohol from suitable crops. In reality, the two objectives now being pursued by the Australian Government do not seem inconsistent with each other. Labor is anxious to prevent Australia from promising to fight beyond her own borders. But if the Empire were again menaced, Australians once more would doubtless go overseas unless that would leave the Commonwealth defenseless.

The advocates of big naval expenditures point out the vital necessity of keeping open the trade routes to and from Australia. They argue that we are dependent upon seaborne trade both for the marketing of our primary products and for the provision of many of our everyday requirements, including oil, rubber and other essentials of war. In these circumstances an enemy would achieve his objective if he could maintain an effective blockade. The people might still be clothed and fed from resources within the Commonwealth, but they would not have the means of resisting indefinitely in the face of a tight blockade. True, the Singapore base is capable of accommodating a great fleet. But the British fleet might not be available for operations in the Pacific, and in any event, Singapore lies far off the probable direct line of an attack from the north. The need of an adequate Australian fleet is emphasized by the fact that even if Singapore were taken that would not necessarily mean the loss of Australia, especially if there should remain enough British warships in the Pacific to coöperate with the Australian and New Zealand naval units in preventing a hostile force from effecting a landing.

If, as has been suggested, Great Britain is aiming at the creation of a Pacific fleet to guard India, Australia and New Zealand, her claim to full coöperation from Australia would be immensely strengthened. The construction at Darwin of a naval base subsidiary to Singapore would greatly add to the strategic strength of Australia, especially with the employment of the latest aircraft (e.g. the Blenheim type) which have an effective cruising range of 1,000 miles from a coastal base. The prospect of a strong air force is brought nearer by the projected establishment of an aircraft factory in Australia.

The military school, on the other hand, holds that Australia can never hope to support a fleet large enough, in the absence of the British Navy, to prevent hostile action against her own shores. They argue that attention should therefore be concentrated on military and aërial preparations. They urge that emergency stocks of essential imports, especially oil, should be kept on hand, and in general that Australia should strive to make herself economically self-contained. They think that in view of the vastness of the territory to be defended, the Air Force will have to play a vital rôle. It is true that air raids by hostile forces might be serious, especially if supported by naval gunnery. Most of the population is on the eastern and southeastern fringes of the continent as are also the principal factories, including the great steel works at Newcastle in New South Wales. Many of the railways, too, are vulnerable to air attack. At the same time, it is true that a large-scale invasion would be a most difficult undertaking, if only because of the problems of transport and supply.

This year's military appropriation of £8,809,478 is the largest ever made in Australia except in wartime. It represents three shillings of every pound received in taxation. Indeed, we are spending far more on defense per capita than any other of the self-governing countries in the Empire. In so doing the Government is trying to satisfy in part the demands of both schools. For the navy the aim is to provide a squadron of four cruisers with the requisite aircraft, a flotilla of destroyers with leader, and a number of sloops and survey vessels, together with the necessary bases. Four cruisers of prewar design have been replaced by two 10,000-ton cruisers and one 7,000-ton cruiser of the Leander type, with another yet to be built. By the time the latter has been launched it will probably be necessary to replace those of the larger size. A destroyer leader and four destroyers were taken over from the British Navy and the Government is now contemplating building a new leader in Australia; it has already constructed two sloops in its own dockyards. A prewar cruiser, a seaplane carrier, seven destroyers and a few minor craft are in reserve. In the coast defenses, obsolete heavy guns are being replaced, anti-aircraft batteries are being provided, and reserves of ammunition are being accumulated. The shore defenses include the erection of huge oil tanks at Sydney and Darwin.

On land it is proposed to provide the nucleus for a field army of two cavalry and five infantry divisions. The air force is preparing to coöperate in coast reconnaissance and the protection of shipping, as well as in direct attack upon enemy raiders; while ordnance, small arms, ammunition and explosives factories are busy. The permanent forces are being increased to 2,300 and the militia to 35,000. In 1929 a Labor Government suspended conscription, ostensibly for economy, and successive Conservative Governments have been averse to reënforcing it. The unsatisfactory volunteer militia system therefore remains.

III. IMMIGRATION POLICY

But the best security of all is provided by man power; and so with the return of normal times Australia is pondering whether it would not be well to resume immigration, but with a new outlook upon that perplexing problem. The population density of 2.27 to the square mile is often cited to support the charge that the "White Australia" policy of excluding all immigrants of color, even from sub-tropical regions, lays Australia open to the charge that she plays a dog-in-the-manger rôle. How preposterous, foreigners declare, that she should hope to retain her vast territories for the exclusive enjoyment of a population of less than 7,000,000 people, over 2,000,000 of whom are in Melbourne and Sydney! The truth is that there has been much idle talk about our "vast empty spaces." For practical purposes 1,250,000 of Australia's 2,970,000 square miles are desert. Only a small portion of the continent is really well watered, and a large intermediate area is suitable only for grazing, which can never support a large population.

Experts differ widely about the productive capacity of the two-fifths of the continent lying within the tropics. Some say that this zone is useless for much except grazing. Others hold that if it were filled with colored colonists it might produce rich crops of rice, sugar, cotton, tea and numerous other commodities for which there is a ready market in the countries immediately to the north. Some prophets of woe go so far as to avow that if the "White Australia" policy is not relaxed, or if it is not vindicated by the white settlement of the tropical zone, Australia will some day have to use force to defend it against those who are prepared to put it to a more intelligent use. Nevertheless, the popular demand for a continuance of the "White Australia" policy is as passionate as ever, and no Government would dare to suggest the abandonment of it. Its basis is fundamentally economic -- the need for protecting our high standard of living against the devastating inroads of cheap colored labor.

The resources which Australia can offer the newcomer are in any case limited, and in the depression years the shrinkage in overseas markets for primary products further reduced the opportunities for Australian agriculture. The urban population of the Commonwealth has been growing twice as fast as the rural, and despite the Government's efforts only a small proportion of the assisted immigrants have settled permanently on the land -- about 14 percent is the generally accepted figure. As a result, all political parties have turned against large-scale schemes of immigration subsidized with government funds. There is immense difficulty in getting immigrants physically and mentally fitted to wrestle with the problems of the peculiar Australian environment, so utterly different from that of the English farm.

Immigration clearly must be correlated not only with land settlement but with exploitation of all of the country's resources. A wide diversity of occupation must lie open to the newcomer. British or other outside capital must be used to develop secondary industry. Science, too, must help us to better and more intensive farming. The areas already settled are capable of much higher production through the improvement of pastures, more fodder crops, rotational grazing, and so on. All these devices will help us cut production costs and, it is hoped, enable us to compete successfully in the markets of the world.

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  • R. L. CURTHOYS, Australian correspondent of the London Times; formerly Editor of the Melbourne Argus.
  • More By R. L. Curthoys