Trade - A Major Australian Economic Engine; A Glimpse Of Top Five Trading Partners

Australia is amongst the world’s strongest performing economies. It completed 28 years of continuous economic growth on a yearly basis in 2018/2019, with trade playing a major part in the continued economic success. During the last few years, trade accounted for more than 25 per cent of Australia’s economic growth.

Two-way trade in goods and services of Australia grew to a new record high of $798.6 billion in 2017?18 period, representing an increase of 8.4 per cent from $ 736.6 billion reported during the same period a year ago.

Source: Department of Foreign Affairs and Trade

Top Trading Partners of Australia:

The Australian trade emphasis has shifted majorly to the Asian region in recent years, with four of the top five trading partners of the country being China, Japan, Republic of Korea and India. Also, United States is the third largest trading partner of Australia.

China is the largest two-way goods and services trading partner of Australia. The two-way goods and services trade between China and Australia stood at $194.6 billion in 2017-18 period, representing 24.4 per cent of the total two-way trade. The Asian country was also the largest export destination for Australia during the period, with export value reaching to $123.3 billion.

Japan was the second largest trading partner with $77.6 billion in two-way goods and services trade, while the United States accounted for $70.2 billion, grabbing the third top position as the country’s two-way trading partner. Republic of Korea and India emerged as the fourth and fifth largest two-way trading partner of Australia in 2017-2018, accounting for $52.3 billion and $29.1 billion in trade value, respectively.

Below graph depicts Australia’s two-way trade in goods and services with its top 15 trading partners.

Source: Department of Foreign Affairs and Trade

Trade Composition:

Globally, Australia has developed a competitive edge in products and services offered. Some of its top trading products are high-technology products like medical and scientific equipment and high-quality wine and processed food. Education, tourism, and professional and financial services are among the major services being exported.

Export value of goods and services stood at $403.2 billion in 2017-18, up 7.9 per cent year-on-year, while export volume reported a 4.1 per cent increase. More than 51,000 businesses based in Australia are engaged in the export of goods and services across the globe.

The top five goods and services that were exported during the period of 2017-18 were iron ore & concentrates, coal, education-related travel services, natural gas and personal travel, accounting for $61.4 billion, $60.4 billion, $32.4 billion, $30.9 billion and $21.6 billion, respectively. More than 90 per cent of metallurgical coal and iron ore produced in the country are exported.

Australia is considered a leader in the global mining industry, as it is one of the largest gold, nickel, bauxite, and iron and zinc ore producers and major coal, natural gas and uranium suppliers.

Value of Australia’s imports of goods and services grew 9.0 per cent to $695.4 billion in 2017-18, with import volumes registering an increase of 7.0 per cent. Meanwhile, in the reported period, personal travel excluding education services, passenger motor vehicles, refined petroleum, ships, boats & floating structures, and telecommunication equipment & parts were the country’s top five goods and services imports, reaching $ 42.5 billion, $ 23.3 billion, $ 21.7 billion, $ 14.9 billion and $ 13.4 billion, respectively.

Top 10 Goods & Services Exports, 2017-18 (Source: Department of Foreign Affairs and Trade)

Free-Trade Agreements:

Australia entered its first free-trade agreement (FTA) with New Zealand in 1983. Since then 9 FTAs have been signed, with Singapore, Thailand, Malaysia, Japan, China, Chile, United States, Malaysia and Korea, respectively. Of the total two-way trade of Australia, FTAs account for 67 per cent. The country is currently in talks regarding six more FTAs. FTAs have substantially lowered costs for Australia-based exporters, as well as facilitated their products’ and services’ trading in the international markets.

If the current negotiations regarding the six FTAs would lead to positive outcome, the share of Australia’s FTAs of the total trade would grow to 88 per cent from the current level of around 70 per cent. With these free trade agreements, Australia intends to boost trade and investment flows.

E-commerce and Digital Trade

Australia also plays a major role in trade related forums such as the World Trade Organization (WTO), Asia-Pacific Economic Cooperation (APEC) and G20.

In the month of January 2019, Australia joined 75 other members of the World Trade Organization (WTO) in initiating talks on the trade-related aspects of e-commerce. E-commerce and digital trade is the use of internet in goods and services trading and covers the information and data transmission related to trade across borders.

Australia is leading the WTO negotiations on e-commerce, as it is one of the important areas of interest among Australia as well as global businesses, owing to the scope of immense opportunities. Businesses have interest in transactions through digital trade and electronic systems, which would result in transparency, single window, paperless trading, e-signatures and other benefits. Moreover, the new updates would mean online consumer protection, personal information/privacy protection, etc.

Australia backs a rules-based and open environment for trading in the global market, facilitating trade digitalisation and lowering barriers for digital trade as well as building faith and confidence in the online environment.

Trade Benefits to Australia

• Promotes economic growth.
• Generates one in every five jobs, including nearly 1.5 million jobs in export-related activities and 670,000 jobs in import-related activities.
• Reduces the prices of products such as motor vehicles, household appliances, clothing and footwear for households and businesses in Australia.
• Offers access to unprecedented choice of products.
• Opens access to the global market for Australian businesses.
• Enables income generation from commodities that are too plentiful for domestic consumption such as iron ore, metallurgical coal and agricultural products.
• Encourages innovation among businesses, as they have to be more innovative, resulting in the adoption of new methods and technologies.
• Builds people-to-people connections, with trade in tourism accounting for a major contribution towards the Australian economy.
• Creates long-term benefits through trade in education services, which is also the largest services export commodity of the country.

Impact of US-China Trade War on Australian Trade

Since 2018, the United States and China, the two largest economies of the world, have imposed tariffs worth hundreds of billions of dollars on each other’s imports, resulting in the start of the largest trade war in the global economic history till date.

The ongoing trade dispute between the United States and China could hurt Australia, as these two economic powerhouses are among Australia’s top trading partners. If the trade war escalates further, Australia could suffer, as it is majorly an export-based economy. Any change in the policy that impact the markets where Australia is trading could result in a major impact on its economy.

In 2018, China was the top trading partner of Australia. The figure below depicts the trade relationship between China and Australia.

Source: Department of Foreign Affairs and Trade

At the same time, Australia and the United States have a strong two-way investment and trade relationship.

Source: Department of Foreign Affairs and Trade

Australia is the only country in the world that has continued to maintain an uninterrupted economic growth for 28 years. Trade is expected to remain a major contributor towards delivering solid economic performance in the coming years as well.

The Australian government continues to support trade liberalisation, aimed at boosting growth, reinforcing global economic collaboration and lowering the risks triggered by the global economy. Moreover, in order to promote economic growth and job creation at a global level, the country encourages open trade.

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