The government has an obligation to protect its citizens - including their financial health and social stability. It's therefore imperative that the government ensures that there's a demand for Australian goods. However, due to Australia's reliance on international trade, any sort of protectionist policy could ultimately prove detrimental - it could lead to taxes being imposed on Australian exports (or any other measures - I'm not an expert in the field). I therefore strongly believe that Australia needs to carve out a niche in the global market by investing in new technology or strengthening quality control of goods. New and durable products are always going to be in demand - although we're in no position to produce cheap goods due to the cost of labour, we can create products that are superior to others out there.
Protecting citizens means protecting both consumers and suppliers. While protectionism may help producers by buffering unwanted competition for them, it will hurt consumers who have less choice. The crux of free trade is choice. Enforcing a 'buy Australian' agenda merely restricts that choice and harms consumers.
It can be shown that tariffs or barriers to free trade harm consumers more than it helps producers (therefore making it a negative policy for social welfare, as costs exceed benefits). This is because barriers to trade reduce the size of the economic pie, as there are less opportunities for mutual benefits (due to isolationism).
If Australian companies can't compete on a price basis, they should differentiate like you suggested, or shift their attention to another industry.
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