FOR 20 years from 1985 to 2005, the Aussie dollar averaged US70c. Now it is hovering around $US1.05. At that level, the question is: does it make sense for any firm to export manufactured goods from Australia?
It's not just Alcoa, Toyota or Holden. It's any firm that exports from Australia, or competes with imports. In the currency of global trade, producing in Australia is now 50 per cent more expensive than in the past. That applies to cars, computer games, university courses or tourism.
Between 1985 and 2005, the Aussie floated between US50c and US90c. If it got too high, firms would tighten their belts, grit their teeth and wait for it to fall. This time it's different.
The dollar is now far above its old levels. Some say it could go higher. Many, most, believe it is now up there to stay. This is not just a cyclical high, it's a structural shift. And it has wrecked good business plans that had assumed a dollar in the range it used to live in.
The destruction is going on all around us. Since the global financial crisis began, Bureau of Statistics figures show, a net 127,000 manufacturing jobs have been wiped out across Australia. One in every eight manufacturing jobs has gone already. Far more than that are under threat.
Treasury, the markets and the Reserve Bank tell us the Aussie is set to remain high far into the future, maybe for decades. It may not stay at today's level, but it will stay well above the zone it lived in before the minerals boom began. This is an epochal change, which will change Australia.
Why does the level of the dollar matter? Suppose you're a manufacturer in Clayton making plastic thingos. There's a big global market, but you're competing with manufacturers in China, Korea, everywhere.
Suppose it costs you $A10 to produce a kilo of thingos. With the dollar at US70c, that makes your costs $US7 a kilo. Suppose the world price is $US9 a kilo, then you're making a decent profit from exporting.
But with the dollar at $US1.05, suddenly your costs have jumped to $10.50 a kilo, yet the global price is only $9. To export thingos now costs you money, serious money. If you think the dollar is going to stay that high, you either somehow cut costs dramatically, or give up the game.
And that's not all. Suppose your Chinese rival can produce thingos for $US5 a kilo. When the $A was US70c, his costs in $A were marginally higher than yours; you could hold him off at home. But with the Aussie at $US1.05, his costs are now less than $A5 a kilo. He can undercut you and take away your local contracts. If you think the $A will stay up here, you don't just give up exporting - you give up manufacturing.
This is a crisis that will bring many well-run firms to their knees: not because they are inefficient, but because costs beyond their control have made them uncompetitive. It is a crisis that, if the dollar remains high as forecast, will cost hundreds of thousands of manufacturing jobs.
But seeing our politicians arguing is like watching two bald men fighting over a comb.
Julia Gillard and Wayne Swan always trot out the line that Labor understands that there are people and firms who are doing it tough. OK, but what are you are going to do about it?
Tony Abbott says he wouldn't have a carbon tax. Wow. A carbon tax might add about 1 per cent to the cost of manufacturing in Australia. The higher dollar has added about 50 per cent. What are you going to do about that?
One option is to do what others do: get the central bank to drive the dollar down. That's possible. They can do that by printing money - but that's the recipe for inflation.
There's two other ways, both unpalatable: invest overseas, as China does, or stop wage growth, as Germany once did.
Our best chance was the mining tax. A 40 per cent tax on superprofits in all mineral sectors, as originally intended, would have sharply slowed mining industry growth, reducing the upwards force on the $A and allowing other industries more room to grow. But Tony Abbott said no, Labor backed off, and even its emasculated tax is yet to pass Parliament.
In the crisis, our politicians and policy advisers have failed the test - unless you think ''do nothing'' is the correct answer. This change will leave many victims in its wake.
