Bert Kelly, December 31, 1970. Economics Made Easy (Adelaide: Brolga Books, 1982), pp. 100-02, as “Iron and Steel (1)”.
While all my parliamentary colleagues (and most of you other sods) have been lying around on the beach, what has the poor old modest Member been doing? Yes, you are right. He has been swotting away at tariffs under Eccles’ stern and eagle eye. I wish Eccles had never been born.
The advocates of protection are always using the infant industry argument, namely, that though high tariffs may not be economically sensible when industries are fully developed, they are often necessary to get an industry started, to encourage people to build the factories and buy the machines and get going. The inference is that after this period, tariff protection would not be necessary. As an illustration of the success of this argument, they always cite the iron and steel industry as the shining example.
When this industry started in Australia, it was protected by tariffs. It does not use its protection in a considerable proportion of its production because it doesn’t need to — because it is good at producing its main lines. But the tariff protection still stays on. Why? Some people say that this doesn’t matter if the protection isn’t used. But it does. For example, the Australian industry doesn’t make the kind of fencing wire that suits the new methods of electric fencing. You can’t blame them for this because there is not yet a great demand for it in Australia. But because there is a duty of $10 a ton on imported wire and because it is not available here, it has to pay the duty and costs the farmer more.
There are a great many similar examples of this. Many particular sizes of structural steel are not made here just because there is not enough demand for that particular size and shape. But duty free admission of these sizes is not allowed, so the duty has to be paid.
If we are as good at producing steel as everyone says we are, then I would think that the duties could well come off altogether. There would still be the very considerable natural protection of freight costs and the Australian industry has the great advantage of being close to its market. To lower the duty would at least let in some badly needed competition.
But there are some tariffs on iron and steel products that are well and truly used and the classic case is stainless steel. Here the duty is 35 per cent. It is here that the “infant industry” argument starts to look a bit loose. To picture the Broken Hill Proprietary Company Limited as an infant is really straining credulity a bit far.
When city people go to the Show they may see the beef classes being judged, if they are lucky. They are rightly impressed by the sleek appearance of the young bulls and they may think what wonderful converters of grass to flesh they are.
It is only when they visit the studs and see the way that these young bulls are foster-mothered that they realise they have been had. At “feeding” time the young bull gets all excited as he sees his cow approaching. You think it is love calling. She is put in the bail, and what does the bull do then? No, you are wrong, he doesn’t. Down on his knees he goes to get at the udder of the poor skinny cow that is half his size, and he sucks away greedily.
Well, it’s all right (perhaps) to foster-mother young calves, but it is silly (and the beef industry knows this) to foster-mother big bulls. It tends to breed the milking quality out of the real mothers. And it seems a bit silly to me to use the infant industry argument with stainless steel.
It is true that the manufacture of stainless steel is an expensive process and the company would expect to lose money during its developmental stages. Well, Fred loses money each time he clears a new piece of scrub — he doesn’t expect to be helped for that. No farmer expects all his paddocks to be equally fertile — equally profitable. You would think that if you were as big and as profitable as the Australian iron and steel industry that you would take the rough with the smooth, particularly if you had an oil well in the back paddock.
There is an annual requirement of about 27,000 tons of stainless steel in Australia. This now costs us about $7m extra because of the duty. The main competition comes from the Japanese who buy our iron ore, nickel and coal, ship them to Japan, make them into stainless steel and then ship them back here again and have to climb over a 35 per cent tariff wall.
It is about time that this big bull was weaned.
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