The Age’s Jessica Irvine is suggesting Australia needs to avoid a Trumpian trade war with China at all costs, dumping the textbook “free trade is always good, everywhere” excuse without even considering a nuanced – or assertive – middle ground approach. To wit:
Trade wars are dumb. That’s why it’s usually politicians who start them.
Because tariffs give domestic producers an artificial leg up. Great, some might say. Let’s help our own. But history shows – including the recent history of Australia’s car-manufacturing industry – that propping up domestic industries doesn’t really help them or their workers. Ultimately, workers are kept in jobs with no real long-term prospects – at least not without costly taxpayer support – and domestic consumers pay higher prices for the imported cars they clearly prefer.
Rather than sheltering unviable industries behind high tariff walls, workers and capital tied up in those industries are better off redeployed to industries where we do have a “comparative advantage” over the rest of the world – that is, where we can produce products better than other countries.
As a nation, we took a punt that we’d rather run the risk of interrupted supply than continually protect industries that weren’t truly competitive and pay higher prices as a result. We’ve enjoyed higher productivity and wages as a direct result.
To their immense credit, Australian politicians have so far held the line, refusing to retaliate against Beijing’s increasing bellicosity. That’s despite some rumblings from Nationals MPs that some retaliatory action – possibly through the imposition of tariffs on China – is required.
Yes trade wars are dumb, but so is insuating that ANY restriction on trade will lead to an outright war. Furthermore, history has shown quite clearly that the hollowed out manufacturing industry has not led to lower prices – particularly for cars – or other products, but it’s been the terms of trade via sending vast swathes of commodities to China that has created a once in a generation economic return. And last time I checked, wage growth has barely kept pace with official inflation since the mid 1990s…let alone productivity
And she only makes one off hand consideration of the longer term strategic positioning of the economy in the wake of a pandemic that has exposed the fragile “free” “just-in-time” “let others make the stuff we need to live on” consumption behemoth:
COVID-19 has led many to question this rejection of domestic self-reliance, but the gains to ordinary Australians from cheaper imports over the past decades are undeniable.
What is undeniable is the ability of economists to discard the truth in front of their eyes as they prop themselves up on big chairs with textbooks that are out of date.
Australia needs a firm hand in dealing with the Chinese and that includes using whatever weapons – including trade – that is has, let alone the biggest one which is creating partnerships with other nations who have suffered the same “free trade is awesome all the time” nonsense espoused by neo-liberal economists for the last twenty years.