Bit by bit, the kind of blatant protectionism that Australia moved on from in the early 1990s is being rebuilt — under different names and more contemporary stylings, but it’s returning nonetheless.

Australia never fully abandoned protectionism — tariffs and behind-the-border barriers remained in many areas of manufacturing and agriculture (you still can’t import a second-hand motor vehicle, for example, without paying a punitive tariff) — but our protectionism of the last two decades has been more a kind of neo-protectionism, under which local industries were supported by taxpayers via subsidies or concessional loans, rather than competitors facing restrictions.

Now, however, the propping-up of local manufacturers and producers is sliding into more traditional anti-competitive protectionism. The most obvious example is the bipartisan decision on the construction of the Royal Australian Navy’s new generation of submarines, from which tenderers unwilling to construct the vessels locally were excluded. Not merely must the vessels be locally built, they must be built with Australian steel, adding tens of billions to the cost.

The next stage of the devolution into protectionism is now being pushed by the ACTU; today it called for a “Buy Australian Act that would require all major government projects and services to use locally manufactured goods, such as steel, iron, clothing and equipment”. Hitherto, local preference in government procurement programs was confined to providing support for local tenderers to participate in major procurements, or imposing bureaucratic but ultimately trivial requirements like local content plans (i.e. plans for how a successful tenderer might consider using local content), or appointing high-profile local industry representatives to spruik the merits of local players in major private projects.

[Keane: Morrison doubles down on dumbness in the face of populist attack]

Such an act as the one advocated by the ACTU would be a blatant breach of international trade rules and existing free trade agreements, enabling other countries to launch reprisal attacks on Australian manufacturers. But ACTU secretary Dave Oliver is unfazed, saying “this government needs to put the people of Australia first, rather than the interests of multinationals” — ironic given it is multinational car manufacturers like Ford, General Motors and Toyota who for decades sponged off Australian taxpayers.

As the Turnbull government’s high-profile reliance on defence protectionism shows, governments of both sides are not above resorting to such measures. Opposition Leader Bill Shorten flirted with exactly the kind of policy the ACTU is now espousing back in April on Australia’s uncompetitive steel industry, before backing off when the penny dropped (so to speak) that it would breach trade agreements.

But while the Coalition has responded to political pressure on the issue, the ALP has a more fundamental reason for pandering to protectionism: cash. Left-wing manufacturing union the AMWU has given over $400,000 to Labor over the last five years; Shorten’s own former union, the AWU, has given over $100,000, while the Communications, Electrical, Plumbing Union has given $100,000.

Protectionist rules of the kind pushed by the ACTU will push up the cost of major projects, meaning fewer infrastructure projects funded by governments, or more debt. They will yield few jobs: the tens of billions extra to be spent building submarines locally will, for example, will yield only 2800 jobs at the most, and are likely to cost jobs in other sectors due to displaced funding and deterred investment. And the Australian steel sector would be unviable even if all domestic steel consumption was mandated to be locally sourced, given the global glut of cheap steel-making capacity.

This literally restores us to pre-Hawke-Keating era levels of protectionism. As the Productivity Commission noted about the submarines decision:

“… the effective rate of assistance provided by purchasing preferences can be higher than the peak historical levels recorded for the automotive and textiles, clothing and footwear industries prior to the significant economic reforms of protection.”

In the long-term, the costs flow beyond to taxpayers to all consumers and business through more expensive products, less competitive markets and less cost-effective investments. We used to understand that, but we appear to be forgetting.

Peter Fray

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