Leslie Massey
Australia has a diverse and open economy, heavily reliant on international trade and investment, which creates jobs and prosperity, and provides opportunities for Australian businesses to expand. Australia has plentiful natural resources, including the second-largest accessible reserves of iron ore, the fifth-largest reserves of coal, and significant gas resources. Commodities have long made up a large share of Australia's exports. Australia has free trade agreements (FTAs) with over 20 countries, which reduce tariffs and other barriers to trade, giving Australian businesses a competitive edge. The Australia-United States Free Trade Agreement (AUSFTA), for example, has resulted in two-way trade growing from US$32 billion to US$77 billion. Australia also benefits from Asia's prosperity, with most of its principal export partners located in Northeast and Southeast Asia.
| Characteristics | Values |
|---|---|
| Trade agreements | Australia has 18 trade agreements with over 20 countries and is seeking to negotiate and implement more. |
| Trade partners | Most of Australia's principal export partners are located in Northeast and Southeast Asia. |
| Trade volume | Over 12,000 Australian companies export to the United States. |
| Trade benefits | Trade creates jobs and prosperity, and opens up opportunities for Australian businesses to expand. |
| Trade impact | Changes in other countries' demand for Australian goods and services can have significant implications for the Australian economy. |
| Trade competitiveness | Free trade agreements (FTAs) provide a competitive edge for Australian businesses, exporters, importers, producers, and investors to do business and seek opportunities. |
| Trade and GDP | Falling commodity prices weigh on growth in GDP, employment, profits, wages, and fiscal revenues, as well as on inflation. |
| Trade and innovation | Australia supports world-class, globally significant research and development opportunities. |
| Trade and business environment | Australia's effective governance provides multinationals with a safe and secure business environment. |
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What You'll Learn
- Australia's economy is open and trade-exposed, so it relies on other countries' demand for its goods and services
- Free trade agreements (FTAs) reduce barriers to trade and give Australian businesses a competitive edge
- Australia has a diverse economy, which is reflected in its economic relationship with the US
- Australia's trade with Asia has grown significantly, with most of its principal export partners in Asia
- Australia's terms of trade reached very high levels in 2011 due to a sharp increase in global demand for commodities
Australia's economy is open and trade-exposed, so it relies on other countries' demand for its goods and services
Australia has a relatively open and trade-exposed economy. This means that its economy is significantly impacted by changes in other countries' demand for its goods and services. For instance, during the 2005–2011 terms of trade boom, a sharp increase in global demand for commodities such as iron ore, coal, and natural gas, coupled with insufficient supply, led to a surge in commodity prices. This, in turn, had a notable impact on Australia's economy, particularly in the mining sector and resource-rich states like Western Australia and Queensland.
Being open and trade-exposed has implications for Australia's economy. For example, an increase in global demand for Australian exports without a corresponding increase in supply will result in higher prices for those exports. This relationship between export prices and import prices is known as the "terms of trade." When the terms of trade improve, the Australian dollar tends to appreciate, and the Reserve Bank may raise the target for the cash rate to manage inflationary pressures. On the other hand, a decline in the terms of trade, caused by decreasing demand or increasing supply, can negatively affect Australia's GDP, employment, profits, wages, and fiscal revenues.
Australia's economy benefits from the prosperity of Asia, particularly Northeast and Southeast Asia, which accounts for a growing share of global GDP. Free trade agreements (FTAs) with Asian countries and other regions facilitate stronger trade relationships, reduce tariffs, and remove barriers to trade, providing a competitive advantage for Australian businesses. The growing middle class in Asia is expected to increase demand for Australia's top exports, including financial services, gold, meat, and tourism services.
International trade and investment are critical to Australia's economy, creating jobs and prosperity. It opens up opportunities for Australian businesses to expand globally, leveraging their strengths, such as world-class research and development, a strategic location, a favourable time zone, and a highly skilled and multilingual workforce. Australia's diverse economy and effective governance also make it an attractive and secure destination for foreign investment, contributing to its strong performance in the global economy.
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Free trade agreements (FTAs) reduce barriers to trade and give Australian businesses a competitive edge
Australia has a relatively open, trade-exposed economy, meaning that changes in other countries' demand for its goods and services can significantly impact its economy. As such, international trade and investment are critical to Australia's economy, creating jobs and prosperity and opening up opportunities for Australian businesses to expand.
Free trade agreements (FTAs) are treaties between two or more countries that reduce or eliminate certain barriers to trade and investment, facilitating stronger trade and commercial ties between participating countries. Australia currently has 18 FTAs with 30 economies, with more in negotiation. These FTAs aim to reduce or remove barriers to trade and investment, providing a competitive edge for Australian businesses, exporters, importers, producers, and investors to do business and seek opportunities.
For example, Australia has principal export partners in Northeast and Southeast Asia, and a network of 18 free trade agreements gives Australian companies preferential access to these fast-growing markets. Asia's middle class is growing, with an anticipated 3 billion consumers by 2030, triggering increased demand for Australia's top exports. Australia's FTAs in Asia have high utilisation rates for merchandise trade.
FTAs also help boost economic and job growth in Australia and deliver new growth opportunities to big and small Australian businesses through greater trade and investment. Australian consumers and businesses benefit from improved access to a wider range of competitively priced imported goods and services.
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Australia has a diverse economy, which is reflected in its economic relationship with the US
Australia has a diverse and strong economy, ranking 13th in the world. It has a highly skilled, multilingual, and diverse workforce, along with a robust economy, a trusted legal system, and a stable society, making it an attractive place for foreign investment.
Australia's economic relationship with the US reflects this diversity. The US is Australia's largest economic partner, with two-way trade valued at US$77 billion and an investment relationship worth US$1.6 trillion. Australian companies in the US operate in a wide range of industries, with California-based Australian businesses working across 83 sectors.
The US is also Australia's largest source of foreign investment, and it has been for over 30 years. In 2016, exports to Australia generated 264,000 jobs in the US, and in more than 15 states, Australia is among the top 10 export destinations. The US has also been the largest destination for Australian foreign investment for many decades.
The Australia-US Free Trade Agreement (AUSFTA), which came into effect in 2005, has been instrumental in this relationship. Since AUSFTA, two-way trade has grown by 138%US exports to Australia have more than doubled.
Australia's diverse economy is also reflected in its imports from the US, which include passenger motor vehicles, aircraft, medical instruments, and measuring and analysing instruments. This diversity in trade and investment has created jobs and prosperity in both nations, fostering economic growth and strengthening the bilateral relationship.
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Australia's trade with Asia has grown significantly, with most of its principal export partners in Asia
Australia's trade with Asia has grown significantly, with most of its principal export partners located in Northeast and Southeast Asia. Asia is expected to deliver nearly two-thirds of global growth by 2030, with its share of global GDP expected to reach 45% by 2026, up from just 21% in 1981. This growth is driven by rapid urbanisation and industrialisation, particularly in China and other emerging economies.
Australia has a network of 18 free trade agreements, providing its companies with preferential access to these fast-growing Asian markets. The country's top trading partners in 2018-19 included China, Japan, the Republic of Korea, Singapore, Malaysia, and Thailand. Two-way trade with China alone surpassed $230 billion, more than double that of Japan, the second-ranked trading partner.
Asia's growing middle class, expected to reach 3 billion consumers by 2030, will increase the demand for Australia's top exports. These exports include natural resources such as iron ore, coal, and natural gas. Australia has abundant natural resources, which have long constituted a significant share of its exports. The country has the second-largest accessible reserves of iron ore, the fifth-largest reserves of coal, and significant gas reserves.
International trade and investment are critical to the Australian economy, creating jobs and prosperity, and offering opportunities for Australian businesses to expand globally. Australia's trade agreements with Asian countries, such as the Indonesia-Australia Comprehensive Economic Partnership, further enhance its trade relations with the region.
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Australia's terms of trade reached very high levels in 2011 due to a sharp increase in global demand for commodities
Australia is a relatively open, trade-exposed economy. This means that changes in other countries' demand for Australian goods and services can have a significant impact on the Australian economy. Australia has plentiful natural resources, including the second-largest accessible reserves of iron ore in the world, the fifth-largest reserves of coal, and significant gas reserves. Commodities have long made up a sizeable share of Australia's exports.
From the mid-2000s, the prices of commodities such as iron ore, coal, and natural gas, which are used to produce steel and generate energy, rose sharply. This was due to a significant increase in global demand, particularly from China and other emerging economies, which were experiencing rapid urbanisation and industrialisation. Urbanisation and industrialisation require investment in new housing, factories, and transport infrastructure, all of which use steel in their construction. As a result, Australia's terms of trade reached very high levels in 2011, around 75% above the average of the preceding century.
The increase in the terms of trade led to an appreciation of the Australian dollar, and the Reserve Bank increased the target for the cash rate in response to higher demand and inflationary pressures. The effects of these changes were more noticeable in the non-mining sectors of the economy, such as tourism, which did not directly benefit from higher commodity prices.
The high commodity prices triggered a massive amount of investment in mines and mining infrastructure across Australia. Mining firms expanded existing mines and developed new ones, leading to the largest resources investment boom in Australian history. In 2012, mining investment had increased fivefold since 2004, peaking at 9% of GDP.
During the 2005-2011 boom, inflationary pressures were relatively contained as the terms of trade rose. Even as commodity prices fell sharply and mining investment declined after 2011, growth in GDP, employment, and wages remained relatively stable. This was partly due to the floating exchange rate of the Australian dollar, which helped smooth the transition after the boom.
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Frequently asked questions
International trade and investment are critical to the Australian economy, creating jobs and prosperity, and opening up opportunities for Australian businesses to expand.
Australia has a diverse economy and strong trade links, a favourable time zone, and a highly educated, multilingual workforce, making it a great location to do business in the Indo-Pacific.
Australia has plentiful supplies of natural resources, including iron ore, coal, and natural gas. Australia's top exports include financial services, gold, meat, transportation services, and vaccines.
Australia has Free Trade Agreements (FTAs) with over 20 countries, which reduce tariffs and other barriers to trade, providing a competitive edge for Australian businesses.
