Australia, being the world’s 13 largest economy is a rather trade-exposed economy. While the country highly benefits from trade, it is rather susceptible to supply chain shocks. With that presents the opportunity for Australia to widen its horizon in trade and benefit from its free trade agreements.
Explore the latest international trade profile of Australia in 2022, including its trade exposure and free trade agreements. Learn about the challenges and opportunities for expanding its global trade horizon.
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According to the International Monetary Fund (IMF), International trade has proven to be a potent tool for promoting economic growth and development throughout the world. Australia, being the world’s 13 largest economy, is a rather trade-exposed economy that benefits from increased competitiveness, diversified and resilient markets. The country’s economic stability has resulted in relatively high levels of average economic growth over time. Australia’s economy grew at an annual rate of 3.36% on average from 2012 to 2021.
Graph 1: Australia’s GDP growth from 2012-2021
source: tradingeconomics.com
source: tradingeconomics.com
However, to sustain this economic growth, Australia over time has adopted policies that make the country’s economy more open to international trade and investment. Owing to rapid globalization, Free Trade Agreements (FTA) has become an integral component of international trade. By definition, an FTA is an agreement between two or more countries that lowers or eliminates certain barriers to trade and investment. In terms of trade, Australia benefits from its 15 FTAs with 26 countries.
Australia’s GDP
According to the WorldBank, Australia’s GDP stood at USD $1.328 Trillion in 2020. To illustrate the importance of international trade, let’s look at what percentage of Australia’s GDP is from trade. The chart below showcases Australia’s trade as a percentage of its GDP. As of 2020, 40.4% (A$796.9) of Australia’s nominal GDP is from trade, with China consistently being Australia’s top trade partner.
Australia’s Trade Balance
Trade balance, also known as net export, is the value of a nation’s export minus the value of its imports. In 2020 Australia had a positive trade balance of A$74.5 billion (USD $53.26 Billion) as total exports A$436.3(USD $309.18 Billion) billion exceeded total imports of A$361.8 billion (USD $256.44 Billion). A trade surplus suggests that Australia is an export-oriented economy.
According to the Australian Trade and Investment Commission, this is an increase from the previous two years when Australia posted a trade surplus of A$67.6 billion (USD $49.91 Billion) in 2019 and A$22 billion (USD $15.59 Billion) in 2018. It’s crucial to note, based on the data, that Australian exports have performed admirably in the midst of the pandemic. To exemplify, let’s look at the graph below from the World Bank, which compares Australia’s growth to global growth from the year 2004 to 2019.
Graph 2: Australia’s economic growth vs world growth
source: tradingeconomics.com
Noteworthy, Australia’s trade growth has always been above world growth since 2016. In 2019, Australia’s trade growth was 2.74%, compared to a global growth rate of -1.13%, and in 2020, it was -0.04% while world growth was -4.9%. This indicates that despite supply chain interruptions caused by COVID-19, Australian exports remained stable. To understand why let’s look at Australia’s key exports and export markets followed by imports and import markers.
Australia’s Exports:
Today, exports play a critical role in the growth and development of countries all over the world as they account for a significant portion of a country’s GDP. The World Bank states, “Australia exports of goods and services as a percentage of GDP is 24.11%.” As illustrated in the graph below, Australian exports have been steadily increasing since 2012, showing a rise in worldwide demand for goods and services. As global markets recover, Australian exports are expected to rise in the coming years.
Graph 3: Value of Australian Exports
During 2019-2020 Australia exported AUD$475 billion ($USD 34 billion) worth of goods services worldwide, with its top 10 commodities being the following:
Together the top 10 commodities shown above make up about 67% of Australian Exports.
Compared to the pre-pandemic era there was a fall in the export of coal, natural gas, personal travel (excl education services), and aluminum ores & concentrates. A fall in the export of coal is largely attributed to China’s ban on Australian Coal in October 2020. Whereas a fall in the export of natural gas was due to weaker global prices and demand.
On the contrary, the export of iron ores and concentrates grew substantially by about AUD$25.675 billion (USD$ 18.524 billion) during the pandemic, largely due to the rising demand for iron ore from China. Likewise, the export of Gold and Beef also rose during the pandemic. Unlike gold producers in China, Peru, Chile, and other countries, Australian gold miners were not compelled to shut down production due to the pandemic, allowing them to ramp up production and meet global demand.
Likewise, Australia’s beef exports grew due to increased demand from countries such as Japan and the United States, where domestic demand outstripped local supply. The rise in export of Iron Ore, Gold, and Wine largely contributed to Australia’s trade surplus for the year 2019-2020.
Furthermore, when looking at the top 10 export commodities, it is apparent that Australia is rich in natural resources and a big exporter of resource commodities. With that comes the notion that Australian exports are volatile as they are significantly reliant on global demand trends.
Coal:
Let’s take a look at coal as an example. China is the world’s largest coal importer, followed by India and Japan, while Australia is the world’s second-largest coal exporter after Indonesia. There has been a shortage in coal supplies worldwide, leading China, Japan, and India on the verge of a power crisis. Supply-chain disruptions, rising LNG costs, severe weather conditions, and other factors all contributed to the supply shortage. Consequently, global demand was outstripped by supply, placing upward pressure on prices in 2021 as shown in the graph below.
Graph 4: Changes in Coal Prices
A price surge in coal has also impacted other commodity markets, particularly natural gas, which is a substitute for coal. Higher coal prices, according to the World Bank, have impacted “the production of some metals and fertilizers,” which has a knock-on effect on food production.
According to the World Bank, despite the price hike, rising demand in China, India, and other South-East Asian nations is expected to offset declines elsewhere, implying that global coal consumption will remain stable. However, the survival of coal is heavily reliant on Asia, which accounts for the majority of global coal demand.
To ramp up supply, the Adani Group established the Carmichael coal mine in Queensland, Australia, with India as a core customer. This initiative will not only improve Australia’s economic prospects as the company’s taxes and royalties will be paid to Australia, but it will also help India to obtain low-cost coal.
Australia’s Export Markets:
According to the Australian Trade and Invest Commission, Australia’s top 10 markets are as follows:
Australia’s top export destinations are centered in Asia, which accounts for more than 65.5 % of all exports. This is owing to Australia’s advantageous geographic location and FTA’s with major Asian economies. As a major commodity exporter, Australia has shifted its export strategy away from traditional markets like the United States and Europe, toward emerging markets in Asia.
Australia and China
Evidently, Australian exports are heavily reliant on China as they account for 35.3% of all Australian exports. Australia and China have a bilateral trade relationship, which totaled AUD$251.1 billion (USD 181.1 billion) in 2019-20, as shown below.