After the car industry (revised and updated)
Quicker than I expected, Toyota has announced that it will be abandoning motor vehicle manufacture in Australia by 2017. That presumably will flow through to components manufactures of all kinds.
The impending end of the car industry constitutes the effective end of large scale manufacturing in Australia, at least as the term is ordinarily understood. The remaining manufacturing sector consists mainly of basic processing of agricultural and mineral products for export, along with food and beverages for the domestic market. Elaborately transformed manufactures, on which such high hopes were pinned in the 1980s and 1990s have been declining for years, and will be confined to niche markets once we stop exporting automotive products.
An immediate policy implication of the end of car production is that it’s time to drop a bunch of policies whose rationale was to support the domestic industry. The most obvious candidate is the FBT concession, just reinstated by the Abbott government. But there’s also the maintenance of some of the worlds weakest fuel efficiency standards, driven by the desire not to tilt the playing field against Falcons and Commodores. More generally, a whole range of pro-car policies will need to be reassessed, given that they increase our dependence on imports and therefore our vulnerability to terms of trade shocks.
The other big policy implication is that there is no longer any reason for Australia to have fuel efficiency standards much weaker than those in the rest of the world. The original rationale was to protect local icons like the Falcon and Commodore. Now that all cars will be important, we should demand that they meet the same standards as in their home markets.
Finally, in political terms, the Abbott government’s toughminded attitude on the end of manufacturing represents a striking contrast with its eagerness to help favored groups like the financial sector (including the salary packaging industry) and primary industry. This produces bizarre contradictions. For example, as Peter Touhey of the Victorian Farmers Federation recently noted, the Coalition government is spending more than $1 billion to upgrade privately owned irrigation infrastructure in the Goulburn valley region, but is then unwilling to come up with $25 million to keep the processing end of the industry open.