Manufacturing Aussie dollar misery

Australian Manufacturing Workers Union boss Paul Howes loves to grab himself a headline and he’s done just that today, declaring that Australian manufacturing will be a hit with a crisis the likes of which have not been seen since the Great Depression.

Last week steel giant OneSteel cut 400 jobs. Today BlueScope Steel followed up by slashing 1000 workers, or 10% of its total workforce. And Howes says it’s just the start.

“The next couple of weeks we are going to see huge amounts of jobs in the manufacturing sector go,” he told Sky News.

“This is one of the worst periods that Australian manufacturing has gone through since the Great Depression, and we are seeing a once in a generation or once in a lifetime shift in the Australian economy at the moment, primarily driven by the high Australian dollar.”

Howes might be being a little over the top, but he does admit there is not much the Government can do about the dollar, accept to put pressure on the Chinese government to stop devaluating its own currency.

Given that is about as likely as pigs taking to the skies, we have to face up to the ugly truth – there just isn’t much that the Government can do to help industry cope with what has been a huge change in the environment under which our economy operates.

Adjusting to the enormous change in the value of the Australian dollar was never going to be easy but I tend to think some of us underestimated how ugly the fallout could be.

Australian manufacturing was not in brilliant shape before the dollar started to go skywards – competing with cheap Chinese labour was a battle many of our biggest companies just couldn’t win.

But the 40% jump in the value of the dollar isn’t just crimping margins. It is forcing companies – and more importantly, these are big employers – to completely review the viability of their businesses.

And as we are seeing, the results of these nation-wide reviews are not pretty.

How the economy might cope with job losses on the scale that Howes suggests is not yet clear, and won’t be until we know widespread job losses could be.

He claims this is the beginning of the end for the steel industry in Australia and highlights how ironic this would be, given that we are the biggest producers of iron ore and coal, the two key commodities for making the stuff.

But as I have been saying in recent weeks (here and here) this isn’t just about one sector and a high dollar.

This is about whether Australia wants to be a country that has a manufacturing sector at all.

If we don’t, what does that mean for our economy and particularly employment?

If we do, what will the sector look like and how do we manage to steer manufacturing through the current turmoil to get it on a more sustainable footing?

Big questions, but the mining boom has allowed us to put them off for some time. The big job losses were seeing right now mean we cannot put this debate off for much longer.