Calling out attacks on a Future Made in Australia, by Julie Harrison

Economists should stop insisting that local manufacturers compete in a ‘free market’ because world markets are far from free, argues Julie Harrison, Chief Executive Officer of Harrison Manufacturing.

There’s a line in the movie Apocalypse Now in which the narrator ponders that, ‘charging a man with murder in this place was like handing out speeding tickets at the Indy 500′.

The Vietnam War is an important context in this quote, and we’re facing a similar search for context-based reality as we confront ‘free trade’ economics and Australian industry’s place in it.

The trigger for this issue is the Labor government’s ‘Future Made in Australia’ policy, which includes the Solar SunShot program announced in April. SunShot makes $1 billion available for an Australian solar panel industry. The stimulus certainly creates jobs and economic activity however the government’s main rationale is a sovereign manufacturing capability as the energy transition gains momentum.

The attacks on the Future Made in Australia policy deserve to be called out. Not because Australian manufacturers want taxpayers subsidising their operations – we don’t – but because most of the criticism assumes a world that does not exist: a free market of global trade.

Australia started deregulating the economy in the mid-1980s under the Hawke-Keating governments, which included trade liberalisation. In 1995 we became members of the World Trade Organization and China joined in 2001. The US Congress only voted to accept China on the assumption that if China could benefit economically from trade liberalisation, it would embrace democracy.

China’s government subsequently propped-up every industry it wanted to dominate and hollowed out the industrial bases of the West. In Australia, our manufacturing sector went from 25% of GDP in the mid-1980s, to 6% today. The United States lost one-third of its manufacturing jobs between 2001 and 2009.

And China’s government did not switch to democracy; it retained autocratic Communism, economic central-planning and mercantilist policies, including trade protections.

Australia’s neoliberal economists know this, and they still want to hold Australian manufacturers to a ‘free-trade rules-based order’ in which there are no rules, no free-trade and no order.

What really drives global trade

Modern global trade is driven by government policy, money and legislation. Australian manufacturers don’t compete with Chinese exporters; we compete with Beijing, along with Washington and Brussels, and sometimes Moscow and New Delhi.

When my own company, Harrison Manufacturing, manufacture grease and other lubricants, we can compete with imports because our products are based on petroleum which has global commodity prices, and which comprises most of the cost of the grease.

But competition ends when governments become involved: in our case, Australia has sanctions on Russian petroleum, but India does not. So India buys ‘off market’ cheap base oil from Russia, makes it into grease, and sells it into Australia at prices that can’t be matched by local industry.

This is government-driven trade, not free trade.

China dominates many industries with government support, including solar PV. This has resulted in the Indian, American and EU governments reacting with their own state support. And now Australia, also.

There might be an argument about the wrongness of subsidies, or giving taxpayers’ money to billionaires, or even a lack of expertise or quality, but please don’t claim that we should stop manufacturing in Australia because the ‘market’ has decided that China does it better. The ‘market price’ for solar panels is set by the Chinese government.

Harrison Manufacturing has received an industry R&D grant to support a new business – Harrison SPARC – that increases lithium yields from the refining process. We’ve employed graduates, post-graduates and other highly skilled people to work at SPARC, and a successful result at scale will mean export income for Australia and a competitive advantage for our resources industry.

Should we leave it to China, because they can do it cheaper?

Manufacturing is no ‘mendicant’ sector

The saddest aspect of the backlash against Future Made in Australia is the labelling of manufacturing as a ‘mendicant’ sector relying on tariffs and subsidies.

Manufacturing still employs just under 900,000 people, it generated $124 billion in value-add in 2022, and it is still the place you go – along with construction – to get stuff made.

Manufacturing is where young people acquire niche skills and trades and it’s still the largest sector in global trade, being three-times the size by value of services (US$ 24.01 trillion in 2023 versus US$ 7.54 trillion).

Australian manufacturing in one respect was dealt a favour by trade liberalisation and the rise of the WTO. We moved up the value-chain to advanced and precision manufacturing where the barriers to entry are higher, but the margins are greater.

Australian manufacturing is now in a position to partake in new global supply chains across the Indo-Pacific region which have been called ‘friendshoring’ by US Secretary of Treasury, Janet Yellen.

In her address to the Asia Society in November she warned of ‘China’s unfair economic practices, such as non-market policies that disadvantage American firms and workers, the barriers it imposes to market access, and its use of economic power to coerce vulnerable trading partners’.

Yellen outlined an antidote – ‘friendshoring’ – as a series of strategic supply chain partners across the Indo-Pacific, which includes the clean energy and hi-tech industries.

This is the emerging trade system for our region, it is absolutely government-enabled and Australia can’t partake in it unless we’re making things. Friendshoring requires partners who make stuff, and stuff of value. You don’t contribute to these value-chains by sitting on the sidelines and saying, ‘let China do it’.

The Albanese government may not yet have the perfect formula, but it has glimpsed the future and is planning for a world in which sovereign manufacturing capability is an economic advantage and a strategic safety net. While the purist economists are handing out speeding tickets at the Indy 500, the government wants manufacturing to join the race.

Picture: Julie Harrison