Australia has faced many domestic threats to her prosperity in recent years, namely from drought, leadership change, bushfires and the recent coronavirus. We are in a vulnerable state, and uncertainty on the international stage is only contributing to that. Now it seems the end of Australia’s 29-year golden age of continuous economic growth is only inevitable.
Our opening up of the economy certainly helped to get us to this point. Since the 1980s, Australia has adopted policies of trade liberalisation, where numerous Free Trade Agreements and bilateral tariff reductions have untied local industry from accessing global competition.
In some ways, these actions have hurt certain jobs and sectors that would otherwise have continued to get by (e.g. Australian car manufacturing). In others, our whole community has benefited; booms such as in international education and mining have enabled us to enjoy high living standards today – a far cry from a ‘banana republic’ as Paul Keating warned in those early days.
Source: RBA, April 2020 Chart Pack
But over the last 3 years, the excitement for worldwide free trade has waned: Brexit seems like Britain’s isolation, and Trump’s tariffs and “America First” have antagonised an assertive modern China in trade dispute. This is the same Asian superpower which buys around 1 in 3 of our exports (in 1980s it was less than 1 in 20), going towards a sector supporting 1 in 5 Australian jobs.
In the last 3 months, however, the coronavirus outbreak has spurred fears both of overreliance on China and overreliance on the supply of essentials. While Australia can be proud of our agricultural sector, which could feed our population 3 times over, we are not as chipper when thinking about everything else that we import: fuels, medical supplies, and other manufacturing to name a few.
In thinking about times of crisis, we simply need to imagine our island nation running on its own.
Canberra has already taken advantage of record-low oil prices to refill emergency stockpiles, but energy stocks do run out at some point; policy certainty for renewables investment is needed to get us toward a point of sufficiency on energy. After all, it is reasonable to expect that in the near future we could greatly produce and store renewable power, or ultimately become a clean energy-exporting nation. Ross Garnaut said last November on RN Breakfast that Australia’s wealth of natural renewable power resources puts us in an advantaged position to thrive in this space (but this is for another article).
With regards to medical supplies, Australia also falls short. While we do have companies like ResMed recently pivoting to work on ventilators, at one point we only had one factory in the whole country making surgical masks, and even they were needing help from the army. China mass-produces much of our Personal Protective Equipment, including both of these products mentioned and others like gowns and gloves, crucial in such a time.
Manufacturing is a more complex story. In a high-wage country like Australia, off-shoring production that requires low-skilled workers is one of the norms of globalisation (cf Graph 2). But now that we are seeing global supply chains faltering, it is no wonder why many are thinking that Australia should pick itself up again through a manufacturing resurgence.
Source: RBA, April 2020 Chart Pack
Two predominant manufacturing industries in Australia which have dissipated since the 1980s are textiles (clothing) and more recently car manufacturing, with Ford and Holden recently having shut its last factories in Victoria. But the new National COVID-19 Coordination Commission (NCCC) has a Manufacturing Taskforce, not taking any industry off the table, is discussing potential blueprints for greater Australian manufacturing capability (though we are yet to see any concrete plans).
However, Australia will not be drastically breaking from regular import and export anytime soon. It is likely that while we hope to be a cautious and more prepared nation after coronavirus, we will still be an openly-trading one. Treasurer Josh Frydenberg hinted in an interview on Insiders that Australia may further explore its comparative advantages, rather than become increasingly protectionist or ready to subsidise industry en masse.
Conceptually, it means that Australia should only produce more of the things that its better at making than the rest of the world; specialise in where we are most efficient and keep trade going – but produce the necessities at home – seems to be the mantra of choice.