Logistics is driving international trade liberalisation, but not quite for the reasons you think.
Eg the iphone – Invented in Calfornia. Assembled in China. Components made in Germany, Japan, Korea and elsewhere. In other words, today’s manufacturing production is fragmented by phases of production, with each country specializing in a phase according to its comparative advantage. (source)
Or take the apparel industry, A woollen garment can be designed in Europe for a European brand, the production is then: (in brackets is the comparative advantage)
- Wool grown in Australia,(Available land and agri-production infrastructure)
- is sent to China for conversion to yarn, (large economy of scale production)
- it then sent to Bangladesh to make the garment, (cheaper labour rates than China)
- then it is shipped to an Australian retailer.
So countries add value along the logistics value chain, importing – adding value – then subsequently exporting to another country for the next stage of value adding.
Therefore applying tariffs or import duties actually restricts the ability of a country to subsequently export. Simplistic calls for tariff or import duty protection whilst populist, actually act to restrict a countries ability to compete of a sustainable basis.
Ultimately countries will compete on the basis of component value adding along the Logistics Chain (Supply chain). Such physical component value adding shall necessitate that countries have the logistics infrastructure, business and individual logistics skill to support competitive advantage.
So here is a question?
Given the state of the Australian Car Industry should it be re-considering its place in the international logistics chain, as a value added component manufacturer rather than a perceived complete manufacturer? What are your thoughts?
