By Chanum Torres and Julia Kokic
There have been increasing calls for Australia to achieve a state of ‘self-sufficiency’ in the wake of the COVID-19 epidemic. Worryingly, calls for protection, subsidisation of flagging industries and nationalisation are gaining currency in civic discourse and within the Liberal Party. While the epidemic has exposed our over reliance on a single trade partner, it is now, more than ever that the Liberal Party must defend free trade and economic liberalism.
Economic reality ultimately blows a hole in any argument for self-sufficiency. Wages in Australia are artificially high, rendering our manufacturing sector uncompetitive. Before Australia even thinks about being internationally competitive in manufacturing, it must contemplate serious and sweeping industrial relations reforms to keep industries in Australia.
Protectionism amounts to taxpayer subsidisation of inefficient practices. Protection saps competition and innovation. This inevitably leads to higher prices. A lack of imports means consumers will have little choice but to cop the higher prices. Their living standards fall. While high income earners can bear the higher cost of living, everyday Aussies would have to go without. Former trade partners retaliate with tariffs and subsidies of their own. With dwindling export destinations, local firms go out of business and domestic unemployment rises.
All the while, those with political connections are able to secure state subsidies, enabling them to monopolise entire swathes of the market. Failing companies that merely claim that their products are in some spurious way vital to the national interest would be able to avail of subsidies and bailouts, slugging the taxpayer and the everyday consumer. In the end, protectionism is a game with no winners.
This would be the absolute worst time for Australia to pursue tariffs and subsidies. The stimulus packages have steeped the Australian Government in debt. Some estimates reach $1.5 trillion dollars. Australian people are bracing for at least a decade of high taxes to pay it back. Are we really to expect the Australian people to also foot the bill for keeping unprofitable industries in Australia?
However, the argument for protectionist policy springs from the question of our national security. As supply chains were interrupted, and the hoarding began, the coronavirus revealed Australia’s dependence on China for essentials like pharmaceuticals. To this, the economically liberal answer is diversification.
The mark of any prudent investor is the diversification of assets. The same principle holds in the world of trade. The crisis has exposed our economic overdependence on China. It highlights the dangers of putting all of one’s eggs in a single basket. Being overly reliant on China for trade was a mistake. The solution is not a retreat into isolation but a diversification of trade partners moving forward into the future. There are emerging opportunities to establish FTAs with Britain, India and other up-and-coming SE Asian countries. If viewed correctly, COVID-19 marks an opportunity for Australia to forge an exciting new path, forming new relationships and diversifying our trade portfolio.
Those in the Liberal Party who would abandon orthodoxy and rush headlong into the bosom of protectionism at the first whiff of grapeshot should reflect long and hard on if it is indeed the party for them. The Liberal Party boasts a long and proud history of championing economic liberalism. For the Liberal Party to abandon a principle so intrinsic to its character would be its undoing. True protection of the Australian economy lies in more free trade, not less.
Image credit: The Conversation