Scrutinising economic ideas for dealing with COVID-19
In light of COVID-19’s impact on the Australian economy, there’s been calls for:
- Reintroducing a tariff on any imported good, so as to support local industry
- Taxing any foreign-owned assets in Australia to promote Australian ownership.
However, you can’t just impose taxes on foreign products and expect good results. We simply don’t have the local industry in place to compensate. It would take a long time and a lot of effort to build enough local production to replace imports. Whacking a tax would simply cause a lot of problems now and vastly increase the cost of living.
Increasing local production is a very complex issue. Firstly, it’s not enough to have final-end production, an entire supply chain of products need to be in place to sustain that. Obviously the big hurdle with increasing local manufacturing is the fact that we no longer have the infrastructure to produce it, at any level of the supply chain.
If we had to, first suggestion would be to somehow build up the basics of the supply chain. Our raw materials are worth a lot more to the country if we transmute and refine them ourselves, rather than selling that overseas. So perhaps state-run refineries would be the better initial option, as it would be very hard to get the initial investment privately.
Next step: push out lots of programs and grants to get small and medium businesses running to create the components necessary for local manufacture. I think this would be better done privately given the enormous variety of components and products needed to fuel the final-end manufacturing.
Thirdly, once this infrastructure is operational, that’s when you bring in the tariffs on foreign products. And you cannot do it as a blanket approach, because it’s extremely unlikely, even in the best situation, that everything Australia needs could be produced locally. This is especially applicable to tech products.
We already pay so much for software we really, really don’t need additional tariffs on it. But for things like cars, whitegoods, and a lot of other tech items, tariffs and government grants could probably provide enough stimulation and motivation to get that working. In other words, skilled or semi-skilled jobs producing local goods. But getting to this stage is near impossible, and completely unaffordable.
I’m also seeing people talk about where products were made — and to avoid those from certain countries as they were not made in Australia. But a lot of the stuff that goes into them was made here. If you’re buying stuff from China the steel is probably made from WA iron and possibly our nickel. The paint? The titanium dioxide may well have been mined in WA. Hand sanitiser? Lanolin from our sheep. The food that kept the workers going? Wheat from the wheatbelt. The gold in the computer circuits? The joss sticks that they may use in prayer?
The whole point of trade is that we produce what we are (either relatively or absolutely) good at and “they” produce what they are (either relatively or absolutely) good at and then we swap what we don’t want for what they don’t want: we all gain. If we don’t trade then we have to start producing what we are less good at and they stop buying what we are good at: we all lose. I’m not interested in making everyone poorer. If you can’t buy something for a moral reason that’s fine — but it also means you are wealthy enough to afford to pay more for something. Great — but not everyone has that luxury.
Globalisation is often conflated with free trade, and they can go hand-in-hand, as long as you recognise the real problem: globalism. That is, government-arranged trade treaties aren’t usually free trade. China’s advantage, for example, in being considered through the WTO as a “developing” nation has skewed trade and manufacturing behaviour elsewhere. This is the globalism that we don’t need; we need freer trade, not a retreat to protectionism.
The foreign ownership tax idea ignores the fact that Australia doesn’t have significant amounts of business and land being owned by foreigners. According to DFAT, when compared to other countries there isn’t much foreign investment and ownership. 2.1% of our economy is controlled by foreigners, which is quite low, with the US having 23.1%.
With this in mind, if we had to have a tax on foreign ownership, it would have to be low in order to strike a balance where the overseas investment would continue but locals would have a comparative advantage. Now that these economic ideas have been scrutinised…
There are 25 million people in Australia. If, conservatively, 70% of the population was to be infected with COVID-19 in order to establish herd immunity, that’s 17.5 million. Note that there are now over 6,000 people who have been infected (it is likely to be more, but not so much more that it counters the substance of what follows).
Taking the highest daily rate of new infections over the last few days (100), it will therefore may take 174,937 days (or 479 years) to reach herd immunity. Eradication, if that is even possible at present, would mean keeping the borders closed until the rest of the world eradicates it, which is a highly unlikely event.
But keeping the borders closed would lead to a diminished standard of living for every Australian, but particularly poor Australians. It would also mean new grandchildren and dying parents who live overseas won’t be visited. A vaccine may or may not be possible, but if it’s possible, the timeframe remains uncertain. As such, do we continue with the lockdowns, or do we stop the lockdowns and accept the risks of further infections?
If the intent was to get the healthcare system up to speed to cope with those seriously ill, has that been achieved? If not, why not and how much longer will it take? If it has, what is now the optimal daily rate of infections so as to not overwhelm the system? What restrictions will be relaxed to achieve that? What is the actual plan here?
I’ve heard it said that COVID-19 is analogous to World War Three. So therefore, there is no reason for governments not to be completely transparent about the plan, and any changes to it in light of new information. Governments should not be allowed to refuse to say what it is they are doing to avoid accountability. And people should be asking questions, lots of questions, and demanding answers.
One thing’s for sure though: “Blocking imports can cause inflation, reduce consumer choice, slow the pace of innovation and lead others to retaliate with import restrictions of their own. Blocking ideas can stifle creativity and impede the correction of policy mistakes. And blocking people at the border can rob a society of talent and needed workers, while contributing to the misery of those forced to flee as a result of political or religious persecution, war, gangs or hunger.
Deglobalisation is also bound to fail in certain policy areas. Borders are not barriers to climate change. Closing them does not shield a country from the risks of disease as citizens can easily return home with an infection. Sovereignty guarantees neither security nor prosperity.
There is a better way to respond to the challenges and threats of globalisation. Effective collective action can meet the risks of disease, climate change, cyberattacks, nuclear proliferation and terrorism. No single country on its own can make itself secure; unilateralism is not a serious policy path.
This is what global governance (not government) is all about. The form of the arrangements can and should be tailored to the threat and to those willing and able to cooperate, but there is no viable alternative to multilateralism.
Isolationism is not a strategy. Nor is denial. We can stick our heads in the sand like the proverbial ostrich, but the tide will come in and drown us. Globalisation is a reality that cannot be ignored or wished away. The only choice is how best to respond.
The critics are right in one sense: globalisation brings problems as well as benefits. Societies need to become more resilient. Workers require access to education and training throughout their lives, so they are ready for the jobs that emerge as new technologies or foreign competition eliminate their current ones. Societies need to be better prepared to cope with inevitable pandemics or extreme weather events caused by climate change.
Globalisation is not a problem for governments to solve; it is a reality to be managed. To embrace wholesale deglobalisation is to choose a false cure — and one much worse than the disease.”