Anticipating the Impact of the Inflation Reduction Act 2.0
It seems like there isn’t much to say.
Commentary
In Anthony Albanese’s speech titled “A Future Made in Australia” delivered in Brisbane, there was a noticeable absence of dollar signs. Perhaps there should have been as the speech focused on re-industrializing Australia without providing concrete specifics.
The speech, consisting of 3,302 words, seemed to be a mix of soundbites and non-sequiturs aimed at both the upcoming Queensland state election and the supposed main subject, the Future Made in Australia Act.
When questioned about the underlying modeling and job creation projections, Mr. Albanese’s response was vague, mentioning the opportunity for “enormous” job growth without providing tangible details.
So, it appears there was no concrete modeling. What exactly was promised in the speech? A general concept was conveyed when referencing other countries and their economic strategies:
– The United States implemented the Inflation Reduction Act and CHIPS Acts.
– The European Union introduced its European Economic Security Strategy.
– Japan passed the Economic Security Promotion Act.
– The Republic of Korea re-framed its economic policy around a National Security Strategy.
– Canada tightened foreign direct investment rules in significant critical mineral reserves.
Instead of Australia leading in creating the future, the speech hinted at following the lead of other nations.
Although portrayed as the “new competition,” the speech seemed to shy away from traditional protectionism or isolationism, raising questions about its true intent.
With a lack of substance in the speech, let’s revisit the reasons why protectionism may not be the best approach, particularly for Australia.
One fundamental reason is that it conflicts with the idea of comparative advantage, as explained by Adam Smith centuries ago. The concept emphasizes focusing on what each nation does best to maximize overall benefits.
Reasoning Behind Comparative Advantage
For instance, a country excelling in car manufacturing and another in corn production would benefit more if the former specialized in cars and the latter in corn. This principle extends to economic activities, much like a specialist hiring a landscaper while a pensioner handles their lawn care.
Australia has historically thrived as an open economy by adhering to these principles.
But what about instances where other nations subsidize their exports, undercutting local markets? Should Australia resort to protectionist measures?
In most cases, no. Subsidies by other nations essentially contribute to consumer savings, presenting an opportunity for countries like Australia to reinvest the surplus strategically for future improvements.
Exceptions to these norms exist, especially as countries grow larger and potential harm from protectionism diminishes.
Optimal competitive advantage arises when nations engage in fair global trade, benef…Read More
