Australia’s Industrial Policy Transformation: Future Made in Australia Act and Shift Toward a Mission-Oriented Economy

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Australia’s economic strategy is entering a new chapter with the Future Made in Australia Act (FMiA), an industrial policy designed to bolster the nation’s role in global supply chains, especially in critical minerals, renewable energy, and advanced manufacturing. This approach diverges from decades of neoliberal policy and embraces a mission-oriented framework that echoes recent global trends toward economic interventionism.

As the global economy navigates geopolitical tension, technological advancements, and supply chain instability, Australia’s shift signifies a commitment to economic resilience and sustainable growth. However, the success of the FMiA depends on navigating complex challenges, including market limitations, geopolitical pressures, and the balancing act of targeted state support with broad economic inclusivity.

Industrial policies have a rich history in supporting economic development. In countries like Japan, South Korea, Taiwan, and, more recently, China, targeted state investments have helped accelerate progress in specific sectors. The governments in these countries directed substantial investments toward technological advancements, infrastructure, and exports, driving their economies to rapidly catch up with the developed world.

In response to geopolitical tensions, particularly with China, leading industrialized nations such as the United States, European Union, and United Kingdom are moving toward a similar interventionist approach. The United States’ Inflation Reduction Act (IRA), for instance, allocates significant subsidies and investments to reshore manufacturing and reduce dependency on foreign suppliers. The European Union’s Critical Raw Materials Act prioritizes securing essential resources for the green energy transition, while the United Kingdom’s post-Brexit policies focus on revitalizing its industrial competitiveness.

The COVID-19 pandemic revealed vulnerabilities in global supply chains, prompting these governments to move away from the Washington Consensus that prioritized trade liberalization and minimal state intervention. In this evolving landscape, industrial policy has re-emerged as a tool for economic security and technological independence, with the FMiA positioning Australia as an important player in this global trend.

Unlike other countries with recent protectionist measures, the FMiA stops short of implementing tariffs or heavy trade restrictions. Instead, the policy emphasizes the importance of reducing Australia’s dependence on commodity exports by fostering high-value industries and reinforcing domestic manufacturing, especially in green energy.

  1. Strengthening Critical Mineral Production and Processing: Given its vast reserves of minerals essential to renewable energy, such as lithium and rare earth elements, Australia aims to position itself as a leading supplier in this sector.
  2. Promoting Renewable Energy Manufacturing: To support its own energy transition, Australia plans to build out manufacturing capacities for green technologies, reducing reliance on imported components.
  3. Encouraging Advanced Manufacturing: By investing in technological innovation and high-value-added production, the FMiA aims to foster a competitive edge for Australia in global supply chains.

The shift toward a mission-oriented industrial policy signifies a departure from Australia’s historical approach, which was largely rooted in liberal economic reforms of the 1980s and 1990s. These reforms enabled the country’s natural resource wealth to drive exports, particularly to China, while reducing the state’s role in determining specific industry priorities. The FMiA, however, reflects a new era, where the government is poised to play a more active role in guiding Australia’s economic trajectory.

While the FMiA’s ambitions are clear, its potential pitfalls have drawn criticism. Critics argue that mission-oriented policies, though well-intentioned, can sometimes produce unintended consequences. Australia’s comparatively high production costs and limited labor pool pose challenges to competing with countries that have already developed robust advanced manufacturing sectors.

  1. Sectoral Bias and Comparative Advantage Concerns: The FMiA targets sectors that, although strategically important, may not align with Australia’s traditional economic strengths. Relying heavily on government subsidies to develop these sectors could risk distorting the market, particularly if sectors with a comparative advantage, such as agriculture or traditional mining, are neglected.
  2. Risk of Industrial Subsidy Competition: Australia’s relatively small economy could find itself caught in a subsidy “arms race” with larger economies like the United States and China. With each pouring billions into strategic sectors, Australia may feel pressured to match the pace, which could result in budgetary strains and reduced funding for other critical areas such as education or healthcare.
  3. Dependence on Export Markets: Unlike the U.S. or EU, Australia’s limited domestic market requires it to rely heavily on exports. As a major supplier of mineral resources, Australia currently depends on external partners, especially China, for processing and downstream manufacturing. The FMiA’s focus on building domestic capacity for mineral processing, therefore, faces significant structural and geopolitical challenges.
  4. Geopolitical Pressures in Mineral Processing: The FMiA’s ambition to expand domestic mineral processing capabilities brings Australia’s alignment with the United States into focus. However, U.S. policies, including stipulations in the IRA that limit Chinese equity in qualifying projects, complicate Australia’s aspirations. This underscores the challenge of aligning with a U.S.-led economic strategy without compromising ties with China, Australia’s largest trade partner.

Australia’s place as a mineral-rich upstream supplier to global markets places it in a challenging position. China currently dominates the global processing of critical minerals, giving it a stronghold in the supply chains of green technology. Despite Australia’s wealth of mineral resources, developing downstream processing facilities within its borders would involve substantial investment and face high labor costs, as well as a continued reliance on foreign machinery and technology.

To compete effectively in mineral processing, Australia must overcome its dependency on imported equipment and heavy machinery from countries such as the United States, Germany, and Japan. While the country has made strides in mining technology innovation, mineral processing capabilities remain limited and often cost-prohibitive.

Further complicating the FMiA’s goals, emerging economies within the BRICS+6 (Brazil, Russia, India, China, South Africa, and others) are actively developing their own supply chains, capitalizing on mineral resources and the advanced processing capabilities of countries like China. Australia’s ability to establish itself as a processing hub is thus complicated not only by cost but by growing competition from other mineral-rich nations aiming to capture value-added stages of production.

The FMiA also raises concerns about potential regional disparities within Australia. States and territories rich in natural resources are likely to benefit more from the policy, as they can tap into subsidies for mining and manufacturing sectors. Conversely, regions without such resources or established industries may see limited benefit, exacerbating economic inequalities across the country.

To create a more balanced industrial landscape, Australia’s policymakers are considering a dual approach that includes both vertical and horizontal strategies:

  • Vertical Programs: These sector-specific programs aim to support industries that are critical to national interests, such as critical minerals, advanced manufacturing, and renewable energy.
  • Horizontal Programs: These broader initiatives support overall economic growth by enhancing infrastructure, fostering innovation, and improving workforce skills across all regions. Investment in education and training, especially in emerging technologies like artificial intelligence, robotics, and automation, can help build a future-ready workforce, particularly in regions outside of resource-rich states.

This approach underscores the importance of inclusivity within the FMiA’s mission-oriented framework. A more holistic policy that includes regional investments and support for small and medium enterprises will be essential to ensuring that the benefits of industrial transformation are distributed equitably across the nation.

As Australia positions itself within global supply chains, fostering strategic international partnerships becomes paramount. These partnerships could provide access to advanced technologies, collaborative research, and export markets, helping Australia establish a competitive edge in high-value industries.

For instance, collaborations with key allies such as the United States, Japan, and European nations could enhance Australia’s access to emerging technologies and reduce its reliance on any single market, including China. Expanding partnerships with countries that share similar objectives in the green transition could yield mutual benefits, especially in renewable energy technologies and mineral processing.

The FMiA’s emphasis on innovation and sustainability also aligns with broader global efforts to achieve climate goals. By prioritizing renewable energy manufacturing and critical mineral supply chains, Australia’s industrial policy supports both economic resilience and environmental objectives. Integrating sustainable practices within industrial expansion can also bolster Australia’s standing as a leader in eco-friendly manufacturing, positioning it favorably in international markets that are increasingly focused on green credentials.

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