‘Australian Made’ won’t make us great again

A new set of rules are being phased in across Australian supermarkets. [1] Soon, any food grown or produced locally will carry a distinctive green-and-gold kangaroo on its packaging to emphasize its production in Australia. Meanwhile, all imported food items will carry a much blander black and white sticker, simply stating the items are a ‘product of’ their country of origin. The packaging is starting to appear on shelves now, and from July 2018 it’ll be compulsory. It’s not hard to predict the outcome of such laws, which unapologetically nudge us in the direction of local produce, despite local goods often coming at a premium over imported goods of comparable quality.

But… that’s alright though, isn’t it? For a start, there’s nothing wrong with being informed, and consumers have a right to know where their food comes from. There are certain things I would definitely rather consume with the assurance that they haven’t spent half a year at the bottom of a container ship. Besides, the Australian Made website tells us exactly why we should be buying locally, and the reasoning seems sound. [2] Supporting local jobs? We all want to do that. Welfare benefits saved? Sounds great too.

There’s an elephant in the room though. On its face, a preference for local goods seems beneficial in respect to both the utility we gain for our perceived altruism, and the economic boost we give to local producers. Yet, when examining the broader picture, it is clear buying local produce of the same quality at a premium, for no other reason than that it was made here, violates one of the most fundamental theories of economics: comparative advantage.

Let’s say the new labelling laws prompt me to start buying all my groceries locally instead of buying cheaper imports from the international market. Supporting local producers boosts their revenues and makes me feel like a top bloke, but every extra dollar I spend on local fruit and veg is a dollar I can’t spend somewhere else in the economy, on either imported or local goods. For the same amount, I have bought a lower total amount of goods that have been produced less efficiently.

The producers who suffer from my reduced purchasing power are diffused, both locally and internationally. The effect on each one is small, but that doesn’t mean they don’t exist. In addition, through boycotting more efficient foreign suppliers, I’m lowering demand for their goods, and raising the prices they must charge for them. The outcome of this is clear – faced with reduced demand, these producers will not be able to provide us with such inexpensive imports. Their prices will rise, and we may find ourselves with fewer options for cheap products when we go to the supermarket.

Does that really matter though? Won’t that encourage us even more to buy locally, and give our economy even more fuel to grow? Unfortunately, no. The ultimate outcome of this action is an aggregate deadweight loss for producers and consumers, both at home and abroad. An important question to ask here: why are certain foreign imports are cheaper in the first place? The answer: because countries are able to produce them with greater comparative efficiency than we can at home. For Australia, we produce certain other things with greater efficiency than other countries, mostly in the form of resources and services, and we export these to other countries so that we may purchase other goods and services on the international market.

What if we stop producing enough to pay for what we have coming in? In that case, our currency will depreciate, imports will become more expensive, and we will naturally gravitate toward local goods and services. With the exception of certain countries who habitually manipulate their currency, [3] the international market will bring us to an equilibrium; one that is much more efficient when free of the distortions caused by ‘moral purchases’ from home.

The Achilles heel in this free-trade argument is surely the question of workers’ rights. How can we be sure international producers aren’t exploiting workers, placing them in dangerous situations, or using child labour? In short, we can’t, at least not with one-hundred percent certainty. The ILO has numerous conventions in place, [4] however these can be both misused and ignored. Preventative measures may be of some assistance here, such as impositions of trade sanctions on non-signatories, and stricter vetting of importers. The answer is not, however, to tar all imports with the same brush.

Our newfound preference for local goods is a mild symptom of an increasing (and irrational) perception that buying foreign goods is somehow bad for us. While this sentiment may, to a degree, be rooted in a form of empathy for local producers, it’s just as likely to be based on xenophobia and racism, factors which have contributed the recent rise in right-wing populism and protectionism across the United States, Britain and Europe. [5]

No matter the sentiment, the outcome is the same; distrust of foreign goods will cause them to become more expensive to consumers. The promises of prosperity through protection are, quite simply, lies. And which consumers will be hit hardest by price hikes on cheap imports? Low-income consumers near the poverty line; those without the luxury of choice between local and foreign goods.

Shielding ourselves from foreign imports through expensive local purchases may give our economy a boost in the short-run, but will leave us with less money to spend overall. The unseen economic effects, while spread thin, more than outweigh the warm and fuzzy feeling we get when we purchase a product with a green-and-gold kangaroo on the front. That kangaroo may be protecting some of our less-efficient producers from unemployment, but it’s also protecting the rest of us from low prices.

Image courtesy of: http://gotop.com.au/

[1] Commonwealth of Australia. (2017). Country of Origin Labelling. Retrieved from http:// http://www.foodlabels.industry.gov.au/

[2] Australian Made. (2017). Why Australian Made? Retrieved from http://www.australianmade.com.au/why-buy-australian-made/

[3] Taylor, S. (2012, September 18). China’s balance of payments: current and capital accounts now pulling in different directions. Simon Taylor’s Blog. Retrieved from http://www.simontaylorsblog.com/

[4] International Labour Organisation. (2017). Subjects covered by International Labour Standards. Retrieved from http://www.ilo.org/

[5] Greven, T. (2016). The Rise of Right-wing Populism in Europe and the United States. Friedrich Ebert Stiftung. Retrieved from http://www.fesdc.org/