Do we need to re-establish why Australia needs an automotive industry?

We import our trains, our trams, our buses (or at least their engines). Every one prefers imported cars so why bother making them here at all?

In these times of skills shortage all those workers who want to work will have no trouble getting jobs in the West Australian iron ore mines or Queensland coal mines. With the Murray Darling Basin drying out we need to move people from Victoria and South Australia.

Nick's article shows the degree of differences which can arise in modelling fairly simple scenarios over (I assume) a ten-year period. I remind OLO readers that ALL IPCC climate change scenarios involve economic modelling of very complex scenarios over a 100-year period.

Draw your own conclusions.

As for the article, it seems reasonable that the major gains in tariff reductions come from bringing the huge levels of protection which Australia's PMV and TCF industries had down to modest levels; and that at the margin, gains are modest. Quite where that margin lies is an empirical matter.

Economists advising the Hawke government's Ministerial Taskforce on Longer Term Economic growth in 1985 unanimously recommended big cuts in PMV and TCF protection as a first step, as there would be dramatic gains to other businesses and consumers which would make it easier to get other worthwhile reforms accepted. Unfortunately, the government cut tariffs for lesser-protected industries while maintaining high PMV/TCF protection for a long time.

In a submission 23 years later to the current TCF inquiry, I pointed out the great gains from reduced protection and expressed concern at the drift of the review - today, "There is a vibrant TCF retail sector, providing many opportunities for both entrepreneurs and employees, and an enormous range of good quality, low-cost merchandise. This transformation has not only benefited consumers and retail employees directly, it has reduced inflationary and wage pressures and freed up spending to the benefit of other industries.

"I was therefore amazed to see that the Federal Government has instituted a – presumably protectionist – review which “signifies the Government’s commitment to further developing and maintaining the capacity for innovation, productivity and international competitiveness in these industries.”"

I don't think that TCF tariffs have yet reached their optimal level; nor will continued government aid help the sector to become more competitive.

Nicholas, I'm having a bit of trouble coming to grips with this. A corollary of what you say would appear to be that all domestic product should have a 5% tariff on it, which appears to me to be counter-intuitive.

If that applied between countries, why wouldn't it apply within countries? Another corollary might be that the total abolition of charges between the states at federation would have cost the country income. Which again doesn't sound right. Where do you draw the line at trade barriers?

Is there a simple mathematical derivation for this rule, or do you have to run models?

Faustino and GrahamY the maths for this economic modelling is quite simple and well known to anyone with a passing acquaintance with econometrics.

The problem with this kind of 'modelling' is that there is simply no way to predict what new (or rediscovered) technology is just around the corner waiting to reshape industry. All we can say with certainty is that zero tariffs provides the best way to allocate consumers' money to people who have earned it, by selling desirable products at competitive prices, rather than to those who just happen to have political clout. In the interests of morality, if not economics, this should be our goal.

Am I missing something?

Some 80 per cent of the vehicles sold are imported and attract a tariff of 10 per cent which we can call a tax. In effect therefore, that tax represents the equivalent of 40 per cent (say $12,000) collected for every car made in Australia (do the sums).

Isnt it incredibly selfish for the so called "working family" to be taxed to maintain three dinosaur companies? Isnt it time we followed New Zealand and allowed these moribund activities to fade out?

Isnt $12,000 collected tax for each Australian-made fuel guzzler car not obscene?