Story: Customs and tariffs

Page 3. Border controls and economic management

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Light industry and the tariff

As New Zealand’s agricultural economy moved from being labour-intensive to capital-intensive in the 1920s and 1930s, light industries supporting agriculture became a logical development. The incoming Labour government of 1935 was committed to developing such a base further. One of its first actions was to pass the Industrial Efficiency Act 1936, which envisaged a major role for tariffs in future economic planning. The government was also conscious of the 1937 deadline on tariff-free access to Britain for New Zealand’s agricultural imports.

Industry or agriculture?

 

Speaking to British trade officials in London in 1937, Prime Minister Michael Joseph Savage said that New Zealand ‘must be able to earn its living, either in primary industries or in secondary industries. If New Zealand’s production of primary goods is to be restricted by levies or quotas, New Zealand must either embark upon secondary industries or find other markets for her primary goods.’1

 

Import and exchange controls

By the end of 1938 the new law had made little impact. But there was a serious balance-of-payments problem. The rapid growth of employment and the recovery of investment had created a demand for imports at the very time when New Zealand’s main export market, the United Kingdom, was weakening. The finance minister, Walter Nash, responded by imposing a strict but temporary regime of import and exchange controls.

This incensed British industrial interests, who proclaimed it a breach of the agreements reached at Ottawa in 1932. The British government agreed, which led to significant difficulties in refinancing New Zealand’s outstanding loans.

War

The outbreak of the Second World War in September 1939 ended wrangles between London and Wellington. In dealing with the economic management of war the New Zealand government had an ideal instrument already to hand – Nash’s import controls. These helped New Zealand to successfully manage its wartime finances and to emerge from the war with a strong economy.

Peace

The import and exchange controls also became means by which New Zealand managed the peace-time economy, under both Labour and its National successors. These controls remained until the 1970s.

One economic historian remarked that their importance was not just economic, but ‘also symbolic. They represent a broad decision that the course of the New Zealand economy should be determined less by events overseas and more by the choice of local people, especially those holding official positions.’2

In fact this outcome was to be confounded by subsequent events. In 1973 Britain joined the European Economic Community. New Zealand lost its principal market. The country was cut adrift economically in a world that had no reason to extend sympathy to a protected economy.

Footnotes:
  1. Keith Sinclair, Walter Nash. Auckland: Auckland University Press; New York: Oxford University Press, 1976, p. 148. Back
  2. G. R. Hawke, The making of New Zealand. Cambridge: Cambridge University Press, 1985, p. 163 Back
How to cite this page:

Tony Simpson, 'Customs and tariffs - Border controls and economic management', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/en/customs-and-tariffs/page-3 (accessed 8 December 2019)

Story by Tony Simpson, published 11 Mar 2010