The Australian steel industry has been ailing for a long time, but the crisis at Arrium couldn’t have come at a worse time for a government struggling with its direction just a couple of months out from an election.

There’s a worldwide glut of steel-manufacturing capacity thanks to China (using our iron ore, let’s not forget) and Australia isn’t the only country struggling to cope with the implications for its domestic industry, given an efficient at-scale steel industry needs strong exports in addition to domestic consumption. In the UK, the Cameron government has been struggling with the pending closure of the Port Talbot in Wales, owned by Indian giant Tata, with UK Chancellor of the Exchequer George Osborne having to fend off claims he’s unwilling to impose tariffs on cheap Chinese steel while David Cameron was rebuffed by Chinese President Xi Jinping, who has imposed his own tariffs on Port Talbot steel.

If the steel industry in an economy twice as big as ours can’t cope with Chinese competition, we’ve got little hope. And all of that is before the problem of a succession of poor decisions by Arrium management, particularly in relation to its debt, which John Durie at The Australian has repeatedly described, including again today. Now a government that the Prime Minister promised to be “thoroughly liberal” has to deal with a protectionist push from its opponents while its South Australian Industry Minister, Christopher Pyne, deals with the direct political problem of the impact on South Australia.

Yesterday, Opposition Leader Bill Shorten lost no time in promising to impose a “Buy Australian” requirement on all government projects — an idea that, even if it significantly increased domestic consumption of locally produced steel, doesn’t address the basic problem that there’s too many steel exports washing around the world to make the Australian industry viable. And how would we like it if other countries adopt such protectionism, closing markets to our steel exports completely? Pyne, doubtless nervously eyeing his margin in Sturt, appeared to endorse Shorten’s approach this morning.

That put him at odds with Treasurer Scott Morrison and Trade Minister Steve Ciobo, who both attacked Shorten’s idea. Inexplicably, though, both ministers invoked trade agreements as the reason why it was a bad idea. If the government thinks it will score brownie points with the electorate by saying Labor wants to breach trade agreements to help local manufacturing, it will get a rude shock in the likely reaction from voters, for whom trade agreements are great if they allow access to foreign markets but not so flash when it comes to allowing more imports.

Morrison and Ciobo might have done better to argue the proper case against Shorten’s idea, that protectionism is always bad for consumers and businesses, no matter how appealing it is to voters, and to ask why taxpayers should get less infrastructure for their dollar because we’re paying more for locally made steel. That would have been the “thoroughly liberal” approach.

Both sides, of course, are in furious agreement to maintain the existing protectionism around Aussie steel: our anti-dumping system, which has become fundamental to the business models of Arrium and BlueScope. In the Productivity Commission’s criminally ignored demolition of anti-dumping in February, the commission noted that 86% of all anti-dumping investigations in 2014-15 were about steel. It also found that anti-dumping was even less economically efficient that outright old-style tariff protectionism. Perhaps Morrison and Ciobo could have explained to Shorten that we already have an inefficient system of protection for local steel, thanks very much.

Instead, Pyne is boasting of the government’s strengthening of anti-dumping laws last year while Shorten is promising to more aggressively enforce them — none of which will address the basic problem that it’s steel exports that will save the industry, not domestic demand.

As always, the argument from protectionists is that steel manufacturing is some sort of “strategic” industry that Australia must maintain — the argument advanced about every industry we’ve propped up for decades and one that is being used to justify tens of billions of dollars being spent to look after the Australian defence manufacturing industry. There are also persistent claims that Chinese steel, and steel sourced from other countries like Vietnam, is inferior and unsafe — a serious issue that needs to be dealt with through more rigorous enforcement of standards, not exclusion of imports.

But don’t expect a particularly nuanced debate on the issue — certainly not from a government as inept at keeping its message consistent as this one, and not on the eve of an election in which the ongoing decline of Australian manufacturing might make a huge difference to the result in South Australia and Victoria.

Peter Fray

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