Prime Minister Anthony Albanese’s Future Made in Australia policies will likely lead to growing “behind-the-border” industry assistance, and a return to trade protection and industry policy carries risks, the Productivity Commission has warned.
While discussing a range of industry-support policies in various statements associated with the most-recent release of the annual Trade and Assistance Review, the Productivity Commission has warned that industry policies could, if poorly designed, “act as a form of trade-protectionism. After all, a $100 subsidy for domestic producers can have the same protectionist effect as a $100 tariff imposed on their foreign competitors”.
The Commission also urged that, because alternative policies can achieve many of the goals of industry policy, “it is important that the goals of each policy be well articulated and subject to rigorous, publicly available cost-benefit analysis. It is also vital for off-ramps to be incorporate into policy design, to allow a timely exit if policies fail to achieve their stated goals”.
In Shipping Australia’s view, this is a particularly timely and apposite warning given that an independent review has just been announced of the Coastal Trading Act, and that review will be undertaken with a view toward creating a so-called Strategic Fleet.
But the Coastal Trading Act and the Strategic Failure Fleet are both bad policies.
The Coastal Trading (Revitalising Australian Shipping) Act 2012 has now been in force for about 12 years and it has failed in every single one of its six or so policy objectives. It caused cost increases in coastal shipping, it caused the volumes of coastal cargo to fall, Australian seafarers to lose their jobs, a landside manufacturing businesses to fail, import substitution, and ships to leave the Australian flag. And all of these remarkably adverse consequences because of a policy that was supposed to revitalise Australian shipping.
This is a policy that is so bad that it shouldn’t be reviewed, just scrapped.
The Strategic Failure Fleet policy is another really bad policy. We know it’s bad because it has been tried four or five times in the past. Every single Australian government-owned or subsidised fleet has, to the best of our knowledge, failed. They all failed for some combination of similar reasons – they couldn’t cope with the ups and downs of the market; they were subject to politically-motivated decisions; they were out-competed; or they were too expensive. You can read all about it in our article: “Global protectionism: Australian Financial Review is on the money… home grown everything is bad policy“. If you’re in a reading mood, have a look at our article: “Shipping Australia cautions against government support for protectionist maritime policies“; this article details a wide range of other policies aimed at propping up domestic shipping and they all failed for various reasons.
Anyway, let’s go back to the Productivity Commission.
In the Foreward to the 2022-2023 Trade & Assistance Review, the Productivity Commission says that its first-ever Trade & Assistance Review was published amidst growth and productivity challenge of an economy that was protected from international competition by a system of import quotas, tariffs and industry assistance. That system has been replaced over the last 50 years by a globally integrated, services-based economy.
“The gains in Australian living standards enjoyed over the period have been due in no small part to Australian businesses being able to take advantage of the liberalisation of trade and investment policy settings. In so doing they have reallocated Australia’s scarce resources to the production of those goods and services that we are best placed to produce, and traded them for those that other countries are best placed to produce… It has been a multi-generational, and multi-partisan project, with successive governments of different political persuasions progressively dismantling Australia’s trade and investment barriers… The benefits can be seen in the expanding range of goods and services available to us; in their lower prices and higher quality; in the higher wages that we have to purchase them; and in the increased reliability with which they are made available. Being connected to a global economy around 60 times larger than our own means that when one source of goods and services is disrupted, others are readily available to replace them. Greater economic reliance on our neighbours may have also contributed to the reduction in broad-based international conflict witnessed over the period – by creating stronger personal and commercial links between nations, by creating greater costs to conflict for each nation, and by allowing trade sanctions to act as an alternative to armed conflict when disagreements emerge,” the Productivity Commission says.
Then, it adds, “these are gains that are worth celebrating and building upon”.
Why do we want to replace a remarkably successful, open, trading system, with a much more restricted, nationalist, government-funded and directed system?
Why does it seem like the Albanese administration is advocating for a suite of Australian policies that are manifestly adverse to Australia’s own economic interests?
Why is it that we are reminded of Britons voting for Brexit?
