The hidden costs of a ‘made in Australia’ future

“I know an economic slam dunk when I see one,” Industry Minister Tim Ayres told a Hunter business audience last week, defending the Tomago aluminium smelter rescue package.

The “slam dunk” in question is a long-term, taxpayer-underwritten power deal for a facility that consumes roughly 10 per cent of NSW’s electricity and can no longer survive rising power costs – costs, ironically, driven by the very renewables transition the government is now subsidising to save the smelter.

It follows the $2 billion Boyne Island package in November, the Whyalla steel rescue, and similar interventions for copper, zinc and lead.

A defining feature of the current Albanese government is its embrace of industrial policy. Its flagship Future Made in Australia agenda commits $22.7 billion over a decade to subsidising selected industries in the name of economic security and the energy transition.

The impulse to override the free market is not Labor’s alone. Senator Matt Canavan, leader of the Nationals, rightly criticises Labor’s picking of winners and losers in their net zero agenda. Yet his Patriot Agenda openly embraces protectionism.

To Canavan’s credit, broad tariffs are less prone to the cronyism of hand-picked subsidies.

But the underlying logic is the same – Canberra still deciding which industries it deems critical to prop up.

The push for economic nationalism on the right rests on the narrative that the world is becoming more fractious: Pax Americana is fading and the Chinese state actively subsidises its industries to put ours out of business.

Australia, the argument goes, needs a manufacturing base to weather the geopolitical storm ahead. And in times like these, Andrew Hastie claims, no medal awaits those making a last stand for neoliberalism.

The sentiment is understandable, and the aspiration to produce more domestically is one most Aussies will get behind.

But the proposed remedy is insufficient and counterproductive. China matters at the margin, but Australia’s own-goals matter far more.

Energy costs have been driven up by a renewables transition and net zero policies that are impoverishing our industry and standard of living. Industrial relations rules have made Australian labour costly and uncompetitive. And red tape and high taxes deter investment.

Until we tackle the root problems, no tariff or subsidy will make Australia manufacture again.

What is often missing from this debate is a sense of fiscal realism. Every subsidy, whether dressed up as nation-building or crisis management, ultimately draws on the same finite pool of taxpayer resources.

Governments cannot insulate industries from global pressures without imposing costs elsewhere in the economy: through higher taxes, higher debt, higher consumer prices or forgone public services.

The political appeal of industrial policy lies in its visibility. A smelter saved, a factory reopened, a ribbon cut.

The costs, by contrast, are diffuse and delayed, spread across households and future budgets. This asymmetry makes poor policy dangerously sustainable.

Australia has been here before. The protectionist consensus of the post-war decades delivered pockets of industrial activity, but at the expense of productivity, innovation and living standards.

It took the painful but necessary reforms of the 1980s and 1990s to unwind that legacy. We should be wary of rebuilding, piece by piece, the same edifice under a different name.

A genuinely resilient economy is not one propped up by perpetual intervention, but one capable of adapting to change – reallocating capital and labour to their most productive uses without political interference. That is the foundation of both prosperity and security.

Of course, genuine national-security exceptions exist. Adam Smith granted that “defence… is of much more importance than opulence”. But the exception must be narrow, or it eats the rule.

Trump’s 2018 steel tariffs were sold on national security grounds, ostensibly to reduce reliance on foreign supply chains. Yet the Pentagon’s own assessment put military steel needs at just three per cent of domestic production.

Our politicians must define and justify “sovereign capability” carefully, lest they open a Pandora’s box of political handouts that produces the same sclerotic industries Hawke and Keating spent a generation dismantling.

The argument that we must be self-sufficient to prepare for conflict in the Asia-Pacific also gets the relationship between trade and security backwards. Isolationism does not insulate against conflict; it may in fact accelerate it.

On the 250th anniversary of The Wealth of Nations, it’s worth recalling that for Adam Smith it was self- command and discipline, not freedom, that lay at the heart of the case for capitalism.

The same market discipline that operates between a butcher and a baker scales up between nations too.

The real deterrent against a Chinese blockade or invasion of Taiwan is not just American aircraft carriers but the cost of being cut off from global markets. Beijing knows aggression would invite sanctions, capital flight, supply-chain disruption and financial retaliation on a scale that would devastate an already-troubled economy.

Trade does not guarantee peace, but it raises the opportunity cost of war. The case for markets only gets stronger in times like these.

The answer to a more contested world is not more bureaucratic intervention or economic isolationism.

It is removing the constraints that handicap Australian enterprise in the first place: energy policy, tax settings, industrial relations, and decades of accumulated red tape. Less political rents, more market profits.

Those who call for a hyper-Australia are right to expect more from this country.

To get there; we need to back the people who actually make it; entrepreneurs, builders, risk-takers – the ones who deliver strength and prosperity as the world turns hostile.