In his recent address to the Australia China Business Council, China's Vice-Premier Li Keqiang expressed his deep desire for a Sino-Australian free trade agreement. This is an encouraging sign, as free trade has long been essential to the wealth and wellbeing of the Australian people.

Over the past two decades, Australia's economy has benefited mightily from open-trade policies. As the global economy struggles to regain its footing and our lawmakers attempt to stem the tide of domestic job loss, it's crucial that we resist the rising popularity of protectionism. Our prosperity depends on this.

A report just released by the Legatum Institute, an independent think tank based in London, ranked 104 nations by their prosperity. The study looked at a variety of indicators, including the levels of social capital, democracy, individual freedom, entrepreneurship and innovation, and economic fundamentals.

The study identified Australia as the sixth-most prosperous nation on the planet. A look at the nation's recent economic history quickly reveals why.

Throughout the 1990s, the Australian government implemented a host of economic reforms intended to increase domestic productivity and spur growth. Chief among them was a reduction in trade barriers.

In that period, tariffs on manufacturing imports were reduced to a maximum of 15 per cent. Quotas on the importation of textiles were phased out, as were barriers in the aviation market. Economic growth has since been remarkable. Indeed, beginning 17 years ago--roughly the time many of these reforms took effect--the national economy has grown at an average of 3.3 per cent a year, well above the average for developed countries.

Even during the recent global recession, Australia fared well. In the past year, it emerged as the fastest-growing advanced economy in the world.

The economy could easily move backwards, though, thanks to the global resurgence of protectionist trade policies. As world leaders deal with the recession, many have been tempted to erect trade barriers in misguided attempts to save domestic jobs.

In September, for example, US President Barack Obama imposed a 35 per cent tariff on car tyres imported from China. A month later, China responded with a tariff of up to 36 per cent on some imported nylon products. And China's Commerce Ministry recently predicted that major economies would ''introduce various trade restrictions and protectionist measures'' in 2010.

Meanwhile, the European Commission is considering a proposal to extend the tariff on shoes from China and Vietnam.

This trend could be disastrous for Australia. Already, the nation's trade sector has been dramatically affected by the recession. By July of this year, the nation's exports had fallen to $20 billion, down nearly 30 per cent from October 2008.

Fortunately, the case against protectionism is strong. For one thing, open trade promotes conditions essential to a prosperous society. Just think about trade within Australia. Surely no one would argue that Victorians would be richer if only they were unable to purchase goods from Queensland and NSW.

Similarly, Australia would gain in no way if it were to enact trade barriers with other nations--regardless of the trade policies followed by those nations.

Open trade turns the entire world into consumers of Australian goods. And it allows Australians to purchase goods from everywhere. It makes businesses more innovative by forcing them to compete. At the same time it makes economies more efficient by enabling more specialisation.

Nations with more liberal trade policies enjoy more freedom and opportunity, higher standards of living and an increased respect for the rule of law. In other words, it helps nations excel in many of those areas the Legatum Institute recently identified as essential for economic success and individual flourishing.

The removal of trade barriers was indispensable to the growth of Australia's economy. In this poor economic environment, trade protectionism should be seen as a threat to prosperity, here and around the world.

Roger Bate is the Legatum Fellow in Global Prosperity at AEI. Greg Lindsay is the executive director of the Centre for Independent Studies.