Dr Chalmers defended the proposed policy at an IMF dinner of top finance ministers and economists, amid concerns of government-backed protection for local solar panel and other manufacturers.
Dr Chalmers had the floor for three minutes during the lengthy working dinner at IMF headquarters this week to promote the industrial policy, aimed at competing against the massive US Inflation Reduction Action subsidy program.
“Everyone’s got their own version of this,” Dr Chalmers told AFR Weekend on Thursday (Friday AEST) at IMF headquarters. “But this is not about protecting us from something, it’s about projecting us into something, projecting ourselves into an opportunity.”
“We think there’s a big opportunity for us to line up our economic and national security interests by recognising that our big chance here in this big economic transformation is at the intersection of our energy resources, our industrial and skills base, and our investment possibilities. And that’s why this is different to protectionism,” he said.
Prime Minister Anthony Albanese announced last week he would introduce the act into parliament following America’s IRA and similar schemes adopted by the European Union, along with Korea, Japan, Canada and other nations to compete in the energy transition, which China largely dominates.
China exports most of the world’s solar panels, thanks to its huge state-backed enterprises, economies of scale and cheaper labour.
Australia’s Productivity Commission head and others have said the Labor government’s act risks entrenching local subsidy-dependent industries and would come at a cost to the economy.
Protecting US workers
US President Joe Biden’s National Economic Council director Lael Brainard conceded this week the IRA and America’s other subsidy policies were just as much about protection as investment in local manufacturing.
“The president understands we must invest in American manufacturing, but we also have to protect those investments and those workers from unfair exports associated with China’s industrial overcapacity,” Ms Brainard said, following the president’s announcement of a tripling in steel tariffs on China.
“The president’s approach is strategic, balanced, and targeted … It is also an approach where we are working with our partners and allies who also are feeling the effects of China’s overcapacity and artificially low-priced exports.”
The Australian government and the Pentagon are exploring ways to co-invest in an Australian nickel project to help mitigate the impact of a Chinese-backed glut.
The IMF’s director of Asia and Pacific, Krishna Srinivasan, repeated the fund’s warning to western governments to exercise caution as they plough hundreds of billions of taxpayer dollars into subsidies. But he singled out support for China’s state-owned enterprises, which needed to be scaled back.
“Clearly China provides a wide range of support to priority sectors particularly the areas of strategic manufacturing and science and technology. But this could lead to two things, one is misallocation of resources within China, and it also effects trading partners,” Mr Srinivasan said.
Some SOEs were “very unprofitable” and more support would only keep these operations “in business for longer than they should be”.
The same risks China’s Xi Jinping faces on government subsidies are, on different levels, the same risks Western governments face when investing in such strategies, he said.
World Bank President Ajay Banga told AFR Weekend that he understood the sentiment behind protectionist reactions around the world.
“I think protectionism is coming as a reaction to some of the things that happened during trades early good growth years, when not enough was done in the developed countries to help lift up the people who would have got impacted by that trade moving,” Mr Banga said.
“That’s why it’s coming back today.”