Tow protectionism to the scrapyard

It’s hard to imagine anyone thought the sight of Bob Katter dressed as the Grim Reaper, being slowly circled by vintage Holden cars, would make a serious policy argument. Katter’s protest was in support of his motion calling for the re-establishment of an Australian car manufacturing industry, supported by the federal government (inevitably).

It is tempting to dismiss Katter’s stunt as ridiculous, but more serious claims than Katter’s — and equally flawed — are being made in favour of protectionism in response to Covid-19, positing the best way to speed up the return to growth is to support local industry.

For example, last month saw reports that a key advisory taskforce associated with the government’s COVID-19 Co-ordination Commission was recommending massive government investment in gas as a way of boosting the manufacturing industry.

This is nonsense, by far the best thing the government could do to aid the recovery is to get its own house in order by figuring out where it is blocking efficiency and frustrating the efficient functioning of the market; and get out of the way.

Like King Canute attempting to issue orders to the tides, there are some things governments just cannot will into being.

Australia has long been a global champion of free trade, though we are constantly fighting protectionist instincts in parts of the economy. Some industries, like manufacturing, retained tariff protection for far too long, or replaced this with ongoing industry assistance, even though other more efficient industries struggled under foreign tariffs.

It is not just business that favours protectionism. Unions have an equally long history of seeking to shelter workers and businesses from foreign competition. As we saw with the failed car manufacturing industry, businesses that are beholden to government are easy targets for union wage and condition demands.

Protectionist policies that purport to ‘put Australian jobs first’ are inevitably more popular during economic downturns such as the Covid recession, especially in light of the rapidly rising unemployment we’ve seen recently.

But these arguments are no more valid now than ever. Protectionism doesn’t work. Protected industries don’t gain the strength to stand on their own two feet. Jobs propped up by government simply do not become viable: they tend to remain dependent on government support, and they disappear once the subsidies end.

Government can’t spend its way to viable industries, and it cannot just re-create the jobs that have been lost in the coronavirus recession (or indeed during the decline of manufacturing over the past few decades).

Protectionism, much like Australia’s car manufacturing industry, belongs to the past. It is not our future.

This is an edited extract of an opinion piece published in the Canberra Times as It’s time to consign protectionism to the history books.