Labor’s Craig Emerson at the AFR:
Liveris has advised Trump on manufacturing and trade policy. Upon his appointment to the co-ordination commission, Liveris signalled the advice he would provide: “Australia drank the free-trade juice and decided that off-shoring was OK. Well, that era is gone,” adding “If I can achieve anything like what we achieved in nine months with Trump, I’d call it a massive success.”
There has been a lot of talk about self-sufficiency in strategic industries. Oh, to be considered a strategic industry! I warned here two weeks ago, beware the ideologues, especially the rent-seeking variety who purport to champion free enterprise but in truth favour private enterprise financially supported by taxpayers
…While manipulators of industry policy flirt with tariffs and subsidies for designated strategic industries, let’s not forget the free-trade agreements Australia would be violating with the United States, ASEAN, China, Japan, South Korea, Malaysia, Indonesia, our trans-Pacific partners, the members of the Regional Comprehensive Economic Partnership and those fuddy-duddy nations in the 164-member World Trade Organisation.
As we breach the agreements we have negotiated and signed in good faith, please spare the outrage and indignation when our trading partners retaliate, blocking off access to their markets as they seek to create their own strategic industries.
What Emerson does not offer is an alternative. Like it or not, large areas of manufacturing are strategic. You need to able to build tanks, build houses, feed your people, deliver them medicine, get them around etc, if something strategic does go wrong.
This kind of basic manufacturing always was strategic. We just pretended otherwise because it was convenient to pretend we could sell houses to one another forever:
That is, we systemically offshored strategic manufacturing while other similar economies did not.
There is no silver bullet to change it. You need a whole fusillade of silver projectiles.
The major inhibitors are macroeconomic:
- overly high currency;
- capital strike outside of resources endowment sector;
- energy policy;
- immigration debauching university standards, and
- tax policy incentivising capital importation to inflate domestic prices.
All of these things destroy your competitiveness as:
- capex costs spike;
- opex costs spike
- labour costs spike;
- IP costs spike;
- and real exchange rate costs spike.
What hope is there for tradable goods under this regime? None. See chart above.
The revival of scalable industrial sectors goes far beyond the Andrew Liveras’ discussion. What will be needed is policy settings that trigger:
- cheaper capital, plus
- cheaper land, rent, labour, energy, research, tax and IP.
These cannot be done in Australia’s current economy without making an enemy of so many interests that you might as well shoot everybody dead. Consider the reforms that will be needed:
- tax mining super-profits to fund industry tax cuts to correct capital imbalance;
- scrap negative gearing (and or deeply strong macroprudential) to reduce offshore borrowing, deflate land and rent costs and help lower the AUD;
- severely restrict international student numbers and invest public monies into universities;
- deploy domestic gas reservation to crash energy prices, and
- create new enterprise bargaining systems linking productivity gains to pay rises.
Consider that the Labor Government recently lost a PM to the first. The Coalition Government recently won an election trashing the second. The third is the key input into the great house price Ponzi relied upon by banks, construction and media for survival. The fourth is run by the world’s largest and aggressive lobbyists. And the fifth brings in unions long since disabused of the national interest.
All of these should be reformed to reboot local manufacturing. But how long can you hold to principle when the few manufacturing interests that are buried under a Mount Everest of toxic interests and policy distortions?
If we can’t use reform and need to use targeted tariffs to restore our sovereignty then we should do so.
