The Manufacturing Resurgence
COVID-19 is heralding the resurgence of Made in Australia. As global supply chains are disrupted and domestic demand increases, Australia’s manufacturing and warehousing industries are booming. In a call to re-shore production, Australia may repeat history to attain economic success.
Many workers are experiencing fear and uncertainty after being laid-off due to the COVID-19 economic crisis. But it’s not the first time Australia’s manufacturing industry has boomed in response to supply chain disruption, resulting in jobs for thousands of Australians.
The World Uncertainty Index (WUI) demonstrates how global events effect economies based on the uncertainty of the outcome. “When uncertainty rises, global value chains suffer,” Explained Dalia Marin, Chair of International Economics, at the University of Munich.
In 2002-03 the SARS outbreak drove the WUI up by 70%. It rose 250% when the United Kingdom voted to leave the European Union in 2016. The COVID-19 pandemic is predicted to cause a surge of 300%. This translates to a reduction in the global supply chain of 35.4% meaning, “Firms no longer consider the cost savings of offshoring worth the risk,” Marin said.
History shows shifts in the market are often driven by uncertainty, but don’t often have a negative impact. Australia’s proud history of manufacturing has contributed significantly to the development of the country and the employment of the people.
If Australia responds successfully to this challenge, the market shifts caused by COVID-19 can lead to sovereignty, stability and job security long into the future. Geoff Crittended, Weld Australia CEO explains.
Amid the terrible circumstances of World War I, procuring everyday products was almost impossible as we relied too heavily on foreign imports. To handle this, manufacturing began within our borders and the manufacturing boom that defined the nation emerged. At the end of the 1920s, 18% of Australians were employed in manufacturing.
Several industries were then hit by the Great Depression. To save onshore manufacturing the Australian Government ordered tariffs on certain imports like metals, this encouraged Australians to buy locally available alternatives. It led to the opening of serval factories and product evolution around the country. General Motors started welding car bodies purely from steel and Rheem began manufacturing water heaters. This was the rise of the manufacturing golden age, now employing almost a quarter of the nation.
As World War II arrived, domestic demand was high; imports were low and Australian manufacturing rose to the world stage. We became an important supplier of manufactured goods to the United Kingdom and the United States, remaining a strong manufacturing force into the 1950s.
These historical examples of adaptation draw a manufacturing roadmap for us to follow in response to COVID-19. They provide hope to those seeking work in this field, despite uncertainty.
The challenge the manufacturing and warehousing industry resolves to face amidst the current economic crisis, is due to the reliance on offshore production.
In the 1970s cheap imports made it difficult for domestic manufacturers to compete and contracts were outsourced abroad. When the former Soviet Union collapsed in 1989, firms relocated production to low-wage countries in the 1990s and the era of hyper-globalisation was born, with China its rising star.
China became known as the world’s factory. It came to economic rise by “establishing itself at the centre of many global value chains and its accession to the World Trade Organization,” said Marin. From 1990 until the 2008 global financial crisis (GFC), global value chains accounted for about 60% of global trade.
But the COVID-19 disruption of the supply chain has been an impetus for firms and states to loosen import ties with China and re-shore their manufacturing.
“Many Australians with small businesses in China are rethinking their strategies,” reports Michael Smith, China correspondent for the Financial Review. “This is going to have a severe impact on global supply chains that is only beginning to show up,” Ker Gibbs, President of the American Chamber of Commerce told Smith.
“The consequences of this pandemic are huge and have accelerated tesions between the U.S and China,” warned Kevin Warsh, fellow at Standford University and former Federal reserve official during the 2008-09 GFC. “Deglobalisation has further accelerated,” Warsh told Forbes Magazine.
“Between rising protectionism (especially in the US under President Donald Trump) and the COVID-19 pandemic, the advanced economies seem to be geared up for a manufacturing renaissance,” said Marin.
Australia is no exception. Our dependence on foreign imports have been brought to light in the global pandemic. And heavily scrutinised as healthcare workers scramble for personal protective equipment (PPE) and medical supplies. In response, Prime Minster, Scott Morrison recently announced his intention to re-strategize international trade affairs, bringing production back to Australia in a move towards “economic sovereignty.”
Such a move would ensure the longevity of the manufacturing boom and the security for Australian workers. “The Australian manufacturing sector’s ability to respond to change will determine it’s future contribution to economic growth,” reports the Bureau of Industry Economics.
Companies that typically produce ‘non-essentials’ have adapted to the climate, producing in demand items such as PPE, sanitizers, cleaning, hygiene and medical supplies. Toyota has recently announced it will manufacture 2,000 face shields in their factory and donate them to healthcare workers in Melbourne.
“The strength of the sovereign capability of Australia depends on Australians investing in Australia. It might be cheaper in the short-term to buy from Thailand, China or South Korea, but all this does is weaken our economy,” said Crittended.
Federal Treasurer, Josh Frydenberg promised to re-evaluate the supply chain and focus on Australia’s strength in the niche market of manufacturing.
For Australia to repay the $320 billion stimulus package, reshoring of production is inevitable. “Local companies will be able to invest in their own businesses, and strengthen the manufacturing industry from within,” said Critteneden.
Andrew Stevens, Chair of Innovation and Science Australia advocates innovation investment. “Business innovation encourages the creation of strong and lasting new businesses and the creation of new and better jobs, which together support a move to higher living standards.”
This can lead Australians to more manufacturing jobs and also higher-paying positions as companies are incentivised to produce solutions to on-going global challenges such as energy consumption.
History teaches us, in an uncertain market Australians do not despair, but look forward to the opportunity that our country presents to us. Today we celebrate the boom in the manufacturing and warehousing industry. Manufacturing is offering lifesaving employment to thousands of laid-off workers during COVID-19 and is the promise of a strong Australian work force in the future.