How Australia’s openness to trade and investment is driving our prosperity: Part I

27 May 2019

Tags

  • Edmund Tang
  • International Trade

Australia has entered its 28th year of consecutive annual economic growth, setting a new record among developed economies for uninterrupted expansion. With an enviable AAA sovereign risk profile, low political risk, and a strategic position that links East and West, Australia is a thriving hub for international commerce.

But what’s behind this success? A major factor is Australia’s openness to both trade and investment – and the latest trade statistics demonstrate how. Today, Australian exports play an integral role in Asia’s dynamic economic growth. For example, twelve of Australia’s top 15 export markets are located within the Asia-Pacific region.

Meanwhile foreign direct investment (FDI) continues to flow in from further afield. Currently, around two-thirds of Australia’s FDI derives from 36 countries who are members of the organisation for economic co-operation and development (OECD).

Increasingly, however, investment is arriving from our trade partners in Asia, in particular China, Japan, Hong Kong and Malaysia. This is an important new trend in Australia’s ever-evolving pattern of investment.

This post will be published in two instalments. Part I will analyse trends in Australian trade: what we export, and who’s buying our exports. Part II will look at investment and how overseas investment is helping to power some of Australia’s most-valuable export industries.

Continued strong trade growth

According to the latest report released by the Department of Foreign Affairs and Trade, Composition of Trade, Australia, total exports of goods and services grew by around eight per cent in 2017–18 in value terms, with robust growth in minerals and fuels (13 per cent).

This achievement is partly owing to the effects of price and currency fluctuations. Even so, Australia’s export volumes still rose by 4 per cent in 2017–18, with volumes of minerals & fuels up 6.6 percent and services up 5.5 per cent.

Services exports account for just 22 percent of Australia’s exports. These services exports are fast growing, however, and will exert an increasing influence on Australia’s trade performance over the coming decade. During 2017-18, exports increased by seven per cent and contributed A$88 billion to export earnings, with education and tourism services both growing strongly. (see table below).

Australia's Trade By Broad Sector and Top 10 Goods and Services

Australia’s Asian markets more vital than ever

Australia’s two-way trade in goods and services totalled A$799 billion in 2017–18, making up 43 percent of nominal GDP. This compares favourably with the US (27 per cent), Japan (34 per cent), China (38 per cent) and India 41 per cent.[1] It means that Australia has a more trade-oriented economy than many of our partners, which in turn means that the continued rapid expansion of global trade disproportionately benefits our economy.

Today, twelve of Australia’s 15 largest trading partners are located in Asia. Together, these 12 partners generate trade worth A$520 billion, or 65 percent of Australia’s total trade. Following several decades of rapid growth in the Asia-Pacific region, Australia’s evolving trade patterns reflect the nation’s strategic location as well as out strong regional ties – and our global competitiveness (see table below).

Australia's Exports and Imports of Goods and Services1

Current price (A$ billion)

Australia’s trade with China has recently grown extremely quickly – by over 25 per cent in just two years. This partly reflects China’s ongoing appetite for Australian iron ore and coal, and it should be noted that export flows of both can be volatile. For the moment, however, resources exports to China are a major contributor to the steady, month-on-month increase in Australia’s trade surplus.

Trade is just one strand in our economic openness story, however. The other strand is foreign direct investment, and in Part II of this blog I will examine how increased trade with Asia is leading to increased investment from Asia as well.

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