Undermining Australian manufacturing

Peter Martin SMH

Over the past decade, mining exports have climbed by around 5 per cent of gross domestic product; non-mining exports have slid by around 5 per cent of GDP. The relationship has been almost exactly one-to-one.

That's not to say the ratio won't improve. Mining exports might one day do more than simply replace non-mining exports. There might one day be few other exporters left to crush - the massive investment in new mines and mining machinery under way might pay off in much higher earnings, as it is meant to.

But what's important are the directions of change. As the mining industry does better, other trade exposed industries do worse.

The main mechanism is straightforward. Higher minerals push up the Aussie dollar, which makes exports harder to sell and imports much cheaper.

There's also a secondary mechanism. The mining boom (particularly the mining construction boom) gets the Reserve Bank worried about inflation. It talks up the possibility of higher interest rates - until this month, that's exactly what it has been doing - and consumer and business confidence stalls.
Step three is when our relatively high interest rates and talk of higher ones draws more money from overseas, pushing up the dollar further.

It's bad for steelmakers, bad for any trade-exposed industry, and to a lesser extent, also bad for industries with no competition from trade. If consumers and businesses are wary of spending - as the Reserve Bank has tried to ensure they are - they will be wary across the board...

... Other nations subsidise those industries precisely because they think they are worth having - for defence reasons, for security of supply and also for emotional reasons. While much of my generation deals with intangibles in white-collar jobs, we know our fathers made real tangible products in factories. We think it matters.

What can be done to make sure we continue to make things? Getting behind the originally-designed mining super profits tax would have helped. It would have taken money from the miners and given it to manufacturers and other non-mining companies in the form of a 2 percentage point tax cut - enough to offset the effects of the higher dollar for a while.

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