Made in Australia: Why the weaker dollar and Donald Trump’s trade war are good for local manufacturers


Posted

October 15, 2018 11:20:58

Prepare to start seeing more of the ‘Made in Australia’ logo in the next few years. That is because the Australian dollar’s fall is leading to the resurgence of the local manufacturing industry.

People like Ty Hermans are cashing in.

Mr Hermans designed a lightweight, environmentally friendly replacement for a concrete slab in his parents’ shed in 2006.

The Polyslab, which is used as a base for products such as air conditioning units, was a big hit.

“We started out as a product developer with one little plastic product that we took all over the world,” he said.

Designing, manufacturing and taking the Polyslab beyond Australian shores was the launchpad for a much bigger business.

“Going through that process of learning to design and develop those products has sort of turned into a business where we help customers and companies develop their own solutions to product needs,” Mr Hermans added.

Mr Hermans is now not only manufacturing and exporting finished products for his own company, he is doing it for other companies as well, and sending those goods to more than 130 countries.

All that global business means a changing Australian dollar is integral to his operations.

“Some projects are as little as one or two months and some of them can be up to 12 months long,” he explained.

“So the foreign exchange rate, and the effect of that, can have a huge impact on a project’s success or failure.”

The Australian dollar’s rollercoaster ride

When he first started in 2006, the Australian dollar ranged between about 75 and 80 US cents.

It rose above parity after the global financial crisis, but now Mr Hermans is enjoying the benefits of an exchange rate 40 cents below that.

“It’s definitely less of an impact on us, less of a negative impact on us than it is for someone who’s importing whole finished goods.

The weakening Aussie dollar definitely makes us more competitive.”

The lower exchange rate is not just good news for Mr Hermans.

“It’s had a big effect on the ability to export to the growing markets in Asia,” the Australian Industry Group’s chief economist Julie Toth noted.

“We’ve seen particular success in food and beverages, groceries, pharmaceuticals, cosmetics, toiletries and vitamins.”

The AI Group’s latest performance snapshot shows Australian manufacturing has been growing solidly for two consecutive years.

“That’s largely a result of growth recovery and particularly export recovery in sectors,” Ms Toth said.

The lower exchange rate is also welcome relief for Australian manufacturers selling within the nation’s borders.

“It’s also enabled other sectors to win back share within Australian markets against the imports that they were competing with,” Ms Toth added.

The other side of the coin

While exporters are applauding the current exchange rate, it is a bleaker picture for those importing goods.

About $20 billion worth of raw materials and goods are imported to Australia every month.

A lower Australian dollar means it costs more to do that.

“The Australian dollar has probably dropped by close to 10 per cent across a whole range of currencies, including the renminbi with China, with the euro and with the pound sterling,” David Chuter, who heads the government-funded Innovative Manufacturing Co-operative Research Centre, observed.

Mr Chuter says the full impact is yet to be felt by importers.

“It may be some time before that exchange rate impact flows through, based on how their contracts are made and where they’re buying their materials from,” he said.

Mr Chuter believes now is the time to capitalise on high import costs, as well as geopolitical tensions caused by US President Donald Trump’s trade war.

“I’m aware of businesses in Australia that are moving production back from China to Australia so they can actually then export to the USA from Australia,” he added.

Growth industry

Considering recent history, the potential for expansion is good news.

When Ford and Holden shut down their local assembly lines, there were cries Australian manufacturing would struggle.

However, with 93,000 jobs added in the last two years, the industry is getting bigger.

Ty Hermans is again looking at adapting his Brisbane-based business, expanding his customer base to bring in clients from North America.

“It’s far better, more cost effective to manufacture those products in our factory here in Brisbane, rather than manufacture these in the United States,” he said.

On top of that, products that were once made overseas are now coming back home.

“We’re seeing an influx of customers wanting to bring their manufacturing work back,” said Mr Hermans.

“Some of these customers took their work overseas 10 to 15 years ago, even three to four years ago, and they’re already looking to bring stuff back here to be manufactured locally.”

Topics:

manufacturing,

currency,

economic-trends,

business-economics-and-finance,

australia



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