Last nail in the coffin for Ford & Holden?

[cycle myth]

more like ....

look what extensive product delays, lack of genuine investment, trying make a competitive car with a jigsaw of cut price bits car did to Mitsubishi.

Sound familiar?

[DRU842]

The problem with Tariffs as a form of industry support is well outlined in the early article; your relying on the Government to pick industry segment winners.
Tariffs are particularly inefficient as the money does go to Government 'consolidated revenue' & NOT to the supported industry, as in direct grants.
Australia (& NZ) have gone through alot of pain restructuring the economy under low tariffs but the results are showing through with low unemployment & low interest rates; debt levels held by individuals, including companies & NOT Governments.
China & many of the so call Asian Tiger economies are realising that they can NOT be good at everything & are starting to exit industries where they have no natural advantage.
YES, there is pain for the individuals & companis affected and the effects are felt for many years but it is necessary tp compete in the global economy, which can NOT be wound back!

[ltd]

Originally Posted by DRU842

The problem with Tariffs as a form of industry support is well outlined in the early article; your relying on the Government to pick industry segment winners.
Tariffs are particularly inefficient as the money does go to Government 'consolidated revenue' & NOT to the supported industry, as in direct grants.
Australia (& NZ) have gone through alot of pain restructuring the economy under low tariffs but the results are showing through with low unemployment & low interest rates; debt levels held by individuals, including companies & NOT Governments.
China & many of the so call Asian Tiger economies are realising that they can NOT be good at everything & are starting to exit industries where they have no natural advantage.
YES, there is pain for the individuals & companis affected and the effects are felt for many years but it is necessary tp compete in the global economy, which can NOT be wound back!

That's a little duplicitous isn't it?
Australia commenced abolishing industry protection in the 1980's and conversely to your point, we also had the highest unemployment through 89-92 since the great depression as well as the highest interest rates since federation. The reason why we have had much improved economic conditions has been due to several factors; a mining boom, revised industrial laws, taxation reform and other proactive policies such as the first home owners grant to stimulate a stagnate economy. Furthermore, better world economic conditions have enabled us to find export markets for minerals otherwise not found such as the 5 billion dollar gas sale to china etc. Why we are starting to see a downturn especially is due to the US sub prime fiasco which has helped wipe 400 billion off our stock market, as well as our housing industry being gutted by the taxation rip offs levelled at consumers by greedy state and local governments. Before the flame war on this, has anyone received their notification from the valuer general re your land values and ergo land tax? Amazing how it has kept going up over 15% per year whilst property values have plateaud or fallen.

Anyway I digress, industry protection is necessary because all other countries have restraints to trade through industry protection as well. If they had none then the argument against abolishing tarriffs would fall flat.

It is called protection purely for the fact that it protects our industries from foreign industries dumping cheap competitive rubbish on our shores. It is as much about maintaining employment as it is about allowing fairness in the way other nations deal with us. Due to massive capital costs of manufacturing it is encumbant upon governments to afford some kind of protection particularly when that industry provides benefits such as; taxation, employment, investment and research - why jeapordise that for some idealist nonsense?

Finally, industry protection at such mild levels is a necessary evil when the rest of the world refuses abolish their protections. Getting rid of it prematurely exposes us to developing nations and their cheaper cost of employment. This is due to lax labour laws whereas we enjoy all sorts of benefits here. Yes the money from tarriffs goes to the government but it is more of a consumption tax than anything else. If Kevin Rudd wants to bignote himself then he should call a federal commission into the duopoly of Woolworths and Coles, and see how prices have increased exponentially over the past couple of years in a sort of collusion sense. He could then also see how those selling to these industry monsters are having to cut prices to make any form of deal. Fresh food people my ***; more like "woolworths your last year cold storage bought at auction sale people".

[DRU842]

I'll take on board the comments that tariff reduction alone is not solely responsible for our improved economic position over the past 20 or so years and that a range of 'free market' policy are responsible.
I will maintain that protection can take many forms & that tariffs are a crappy way of providing it; i.e. they are inefficient to the economy as a whole. Our industries are protected from 'dumping', not by tariffs but other laws around importing & trade. By definition its only dumping if someone, typically local industry, is hurt. i.e. its NOT dumping if there is no local industry supplying like goods.
We do have some 'natural' protection in that we are so far from global markets & freight makes imported good more expensive.
If you want to talk cartels have alook at the shipping industry & wharves! They are specifically exempt from certain areas of the Trade Practices Atc.

[ltd]

DRU842 you make some excellent points, I'm just not sure what other protections other than tarriffs there are. Quota's and embargoes are non existant in this country, so other than paying the GST upon landing here there doesn't seem to be any sort of protection. I think we can make a comprimise on the efficiency of tarriffs; how about we make the revenue raised from tarriffs pay for the carbon tax we are all going to be lumped with. It's much better than the 10cpl we are going to have to pay on fuel in the not too distant future.

[russellw]

It is a vastly complex issue and one that has occupied the minds of economists and various world Governments for most of the industrialised era.

However, for the simple purpose of this exercise, let us have a little history lesson.

The 1984 Button Plan was devised as a means by which Australia could become more globally competitive over a period of time by gradual reductions in the protection provided to the Australian automotive industry and in most respects the plan did meet some key objectives it had as the Australian industry became more efficient but it probably should be counted as a failure for two reasons:

1. It worked on the premise that other countries would also be following the trend toward lower tariffs but this has not really eventuated to the point where our tariffs are now lower than any other country with car manufacturing capability.

2. It also assumed a level playing field but with imports now holding the vast majority of the market in Australia and all of those source countries imposing higher tariffs than us, it leaves this country at a distinct disadvantage.

You see the emerging economies like Korea, China and Thailand have tariff barriers to protect their industries but have managed (in two of those cases) to con our Governments into providing very nice one way free trade agreements which is why a lot of the cars we see imported here actually come from one of those countries. Smart on their part and dumb on ours.

We used to have a healthy and robust textiles industry - hardly surprising when we are a major producer of wool but it was decimated in the latter part of the 80's as a result of tariff reductions and for all intents and purposes no longer exists. It was never going to be able to compete globally against the massively lower wage structures in other economies and thus we now sell our wool to Japan and other countries so that they can sell it back to us as finished products that we used to manufacture here.

You may well be asking, so what? On the face of it we benefit as consumers through lower prices for these goods and (after all) those lost jobs have been replaced by others in the intervening two decades and although we have lost the manufacturing capacity it doesn't seem to have caused much harm.

Wrong. The problem is that this transfer of manufacturing capacity strengthens the economies of our competitors whilst weakening our own. At present we are sitting in the midst of a resources boom yet our most recent trade figures show a record trade deficit of almost $3.3 billion for the quarter - and that on the back of successive record quarters in the previous 12 month period to the point where our current account deficit is now in the order of $20 billion. So why is this a problem?

It's a problem because the bulk of that current account deficit is not for goods but for debt (about $13bn of it) which simply means that this country now owes a lot more than it owns - at record levels. Proof of this can be seen in the move by the cashed up economies (which our should be) starting to launch takeover bids for our resource producers which serves the dual function of protecting their supply of resources and lowering the price of those resources. It's a repeat of the the Japanese approach in the 70's.

Still don't see the problem?

The resources boom will end - it may already have actually started with some of the forward negotiated long term contracts showing a contraction in the price for some resources down 40% and when this little bubble bursts we all are going to be in need of some rain protection but that's a topic for another day. What does matter is that our relative lack of protectionism is actually enriching our competitors at our expense and our manufacturing industry is going down the gurgler with it. If that helps you to sleep easier then perhaps you can lend me some sand to bury my head in as well.

Finally let us get back to the car industry. It is no secret that the share of the market held by locally produced cars is about two fifths of bugger all - and we've seen a clearly telegraphed message from Toyota that if the Government continues on it's anti manufacturing stance to further reduce tariffs that they will take their bat and ball home yet we continue to see bleating sentiments from the great unwashed who believe that it is a great benefit to them if they can save 5% off their next car (assuming they have an economy left to buy one with) and who simply reckon that our manufacturers should be building different types of cars and that they would then sell.

It would take to long to debunk both those myths as they aren't simple issues either. Instead I shall simply pose (and answer) one last question which I am sure some are asking - why do we even need a manufacturing base?

Manufacturing used to make up almost 45 % of our GDP, a figure that has now fallen to around 11 % and which continues to shrink, it also now employs just under 1 million people which means it has shed 3 million jobs in the last 20 years most of which have been transferred to the mining and service sectors. If this trend continues without intervention by economic forces (which seems unlikely) then the industry will be all but non existent within the next 15 years or so.

Now it is fair to say that the resources boom has absorbed a lot of those lost jobs but with nearly 60% of our workforce in the so called services sector we are losing our capacity to actually make things any more - compare this with our near Asian developing economies where almost 60 % of employment is in manufacturing and you start to see the wider issues. Apart from the danger the resources fed economy faces overall from a collapse of that segment, the services sector is highly reliant on a robust and growing economy which is itself in danger globally and is (in fact) a massive house of cards waiting for something to pull out the one holding it up.
None of this answers the question as to why we actually NEED a manufacturing base but it does perhaps point to the fragility of an economy based on resources and services without any real tangible output but the answer to the why really comes down to two things:

1. Strip mining Australia for resources is - at the very best - a short term answer to our economic future. Sure it has kept the economy afloat for the last decade (and beyond that) but we need to learn from the example of the wool industry to see that this is a strategy which is fraught with risk. This country used to be described as one that rode on the sheep's back - we exported billions of dollars worth of wool and had a healthy textiles industry but it only took 15 years for all of that to effectively disappear to the point where it now represents an insignificant part of our GDP. The issue is exacerbated with the resources boom as a large portion of our foreign debt exists to support the mining industry with the equipment and capital it needs to actually produce the resources it sells and despite the boom we are still going backwards in terms of our current account deficit - which we shouldn't be. When we have nothing left to mine or when the boom bubble bursts or when the near Asian economies own all of our mining companies (whichever happens first) then where are we left?

2. It may seem funny to say in a region that has been relatively peaceful for the last 40 years but the manufacturing capacity that any country has becomes a critical tool in the event of any conflict. During both World Wars (and even lesser conflicts) it was the manufacturing industries which were leveraged to help produce the tools of war and while it is certainly not something we would actually want to see, a country that gives up manufacturing capability is weakening defence capability substantially.

If you believe that BHP Billiton and Rio Tinto will save Australia from the impacts of global recession then you can happily kiss the manufacturing sector goodbye and sit back while more and more factories are bulldozed to make way for even more housing that no one can afford or which is too far from anywhere to be useful. Actually it is more likely that the bulldozed factories will simply result in a greener Australia because there is no point building fringe housing in a housing market that is already shrinking when there are no factories in those areas to provide the employment anyway. The other bonus for those believers will be that we will also have a positive impact on greenhouse emission targets given that 35 % of our energy use (mostly from coal fired facilities) is used by the manufacturing sector.

However, for those with a basic understanding of economic theory and whose heads aren't stuck where the sun doesn't shine, then perhaps a little warning bell will be ringing that might suggest there are sound reasons for continuing to protect our fragile manufacturing segment now and well into the future.

Cheers
Russ