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Thursday, 25 May 2006
Page: 95

Mr RUDD (4:24 PM) —I continue my comments on the Australian Trade Commission Legislation Amendment Bill 2006. Manufacturing and manufactured exports are of critical significance when it comes to whether or not Australia can rectify its current gross trade imbalance, the imbalance on its current account and its spiralling half-trillion dollar foreign debt. I noted in my previous remarks in the debate on this legislation that Australia’s share of global manufactured exports has in fact declined since 2000. This experience is consistent across most developed countries, as China’s manufacturing capacity has grown. The United States, the United Kingdom and Canada, for example, have all suffered a slowing in the growth of manufactured exports. It is important to recognise that these trends are occurring elsewhere in the world but not as steeply, as sharply or as significantly as is occurring in this economy, where manufacturing is going out the back door.

If we look at the growth in Chinese manufactured exports, they accelerated from 17 per cent to 26 per cent a year between 2000 and 2004. As a result, the average OECD country has lost six percentage points of global market share over the last five years. Over the same period, Australia’s share has declined by three times this amount. That highlights the problem. There is a China factor out there, but here in Australia the decline in manufacturing and the decline in manufacturing exports vastly exceed that which we see over comparable OECD economies, and that presents us with another fundamental challenge for the current account. It is this massive growth in China’s manufacturing capacity that has driven demand for Australian resources and the boom in prices that this entails, and that has been the dividend which Australia has attracted at the same time.

The key question on the future of Australia and its exports regime is this. How long will the resources boom last and what will happen to Australia’s trade balance when that resources boom ends? There are few who believe that current commodity prices will last forever, and we must be mindful of the fact that none of the previous spikes in commodity prices in Australia’s history have ended well. We hope, of course, that when the resources boom ends for Australia our economy will not suffer as a consequence. But if we do not implement a comprehensive export strategy then we are helping to ensure that, when it comes to the end of that boom, the consequences for the economy overall will be great.

History reminds us that the current boom in resource prices is now close to equalling the boom of the 1970s but is unlikely to surpass the Korean War wool boom, which saw Australia’s terms of trade increase by 140 per cent over two years in the 1950s. The key point is that Australia’s historical experience of resources booms is that they eventually unwind, sometimes very sharply and sometimes very rapidly—as in fact happened just after the Korean War itself. On other occasions the unwind has occurred more gradually, as it did in the 1970s, when the terms of trade fell to pre-boom levels over a three-year period. There may be some limited structural increase in Australia’s terms of trade, but if history is a guide then our terms of trade could possibly retreat from near record levels.

The next question is: with all our eggs in the resources basket, who will our exporters be once the boom is over and what should we do in the meantime to ensure that these industries do not collapse? This is the question Labor are asking, and we are not alone in posing this question. The Australian Industry Group shares our concerns, and its Manufacturing Futures publication summed up its fears:

Among manufacturers there is a belief that while Australia is currently experiencing a commodity boom driven by demand from China and India, it will not be possible for manufacturing to pick up the slack when the boom comes to an end (as it inevitably will), because critical mass and capability will be gone.

In other words, once the resources boom is over, what will be left of our manufacturing? There will be an industry, an important industry, that we will rely upon to fill the gap created by the slowing resources sector. While it is clear that across-the-board tariffs are not the solution, there is a role government can play to smooth out the economic cycle. Just as Mr Costello and Ken Henry, of the Treasury, believe there is a role for the Reserve Bank to play in smoothing the economic cycle through monetary policy, so too is there a role for government to ensure that the economy has a robust future once the resources boom comes to an end. The Australian Financial Review in an editorial last year argued that there was a role for government in ensuring a balance between industry sectors and the economy. The Fin Review are not a bunch of wets when it comes to these questions. They said:

Industry policy has moved a long way since manufacturing was equated with high levels of industry protection. But now there is a need to do more than simply leave manufacturing to its own devices—as long as we follow the incentive route and do not revert to protection.

We are not talking about tariffs or massive industry subsidies, nor is industry.

Debate interrupted.