International Trade Profile of Australia

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January 19th, 2022

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.

 

By Shreya Sharma


 

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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

 

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.

 

 

However, a trade war has recently strained Australia’s relationship with China, forcing the country to diversify its trade relations. A trade war emerged when Australia backed the demand for an international investigation of China’s mishandling of the coronavirus outbreak. In retaliation, China imposed high taxes on imported goods from Australia, namely barley, beef, wine, education, and others.  Furthermore, they further created barriers for Australian coal and timber. China justified its tariffs to the WTO by claiming that Australia had dumped its products at a low cost on the Chinese market, which was subsidized by the government, which Australia denies.

 

“Australia is seeking to diversify its trading relationship,” Australian trade and investment minister Dan Tehan said, referring to Australia’s fairly precarious relationship with its top trading partner China. Diversification, on the other hand, will be a difficult and long-term undertaking. It would be interesting to see what opportunities Australia capitalizes on.

 

Imports:

 

Imports, like exports, are critical to the economy as they allow a country to bring foreign products to its market when certain goods and services are unavailable, rare, expensive, or of poor quality in its own country. In 2019-2020 Australia spent a total of AUD$397.9 billion (USD$287 billion) on imports. Due to travel and other limitations placed globally, this was a 5.7% decrease from the previous year.

 

Graph 5: Australian Imports

source: tradingeconomics.com

 

Import commodities and Import markets:

 

The following are Australia’s top 10 import commodities and import markets.

 

 

 

Based on the charts above, Australia’s top import market is China which accounts for 21% of all Australian Imports. According to data from OEC, Australia imported Broadcasting Equipments, Computers, and Refined Petroleum from China in 2019. From the US, Australia imported commodities like cars, medical instruments, and more. From Japan, Australia imported cars, delivery trucks, and so on.

 

 

Trade opportunities between Australia and APAC:

 

Australia’s reliance on the APAC region is evident as the region accounts for eight out of ten of its key export markets and six out of ten of its top import markets. The APAC region continues to dominate Australia’s two-way trade flow with 69.9% of the market. Therefore, part of Australian trade success can be attributed to its geographical location within the APAC.

 

However, despite its dominance, there is still room for growth for Australian exports to further expand in the APAC region. Likewise, other regions also have the opportunity to ramp up production and cater to Australian imports.

 

Top Export Growth:

 

The graphics below showcase the percentage increase of Australian exports from 2014 to 2019.

 

Petroleum gas exports have increased rapidly, followed by gold, coal briquettes, and agricultural goods such as wine and meat. The growth in these exports implies increased trade opportunities for Australia.

 

 

Export: Petroleum Gas

 

Petroleum gas has emerged as one of Australia’s fastest-growing exports. It has grown by 111%, from USD$16.2 billion in 2014 to USD$34.1 billion in 2019. In 2019, Japan was the top destination for Australian petroleum gas, followed by China and South Korea. Evidently, Australian Petroleum Gas has seen an uneven growth in its export across the APAC region.

 

 

The global petroleum gas market is forecasted to increase at a rate of 4.91% YOY, reaching a market value of USD$153.146 billion in 2026, up from US$109.493 billion in 2020. The Asia-Pacific area will witness the highest increase in LPG consumption by 2026.

 

Given the rising demand, Australian exporters have the opportunity to expand their exports, particularly in India, Bangladesh, Vietnam, and Thailand, where the country only caters to a small percentage of its total LPG exports.

 

Export Gold:

 

Gold is Australia’s fourth-largest export commodity and one of the fastest-growing, with exports increasing by 66% from USD$15.7 billion in 2014 to $25.4 billion in 2019. Australian gold was largely dominated by China ($9.57B) and the United Kingdom ($8.37B) in 2019.

 

 

The United Kingdom, Switzerland, Hong Kong, Azerbaijan, and China have been the fastest-growing destinations for Australian Exports. While gold exports to Singapore and India have decreased drastically, in the long run, together with China, these countries represent an opportunity for Australia’s gold exports to increase.

 

As global economies recover from the pandemic, in 2022 and 2023 global gold consumption is anticipated to grow at a 5.8% annual pace, reaching 4,537 tons in 2023. Jewelry consumption is expected to increase by 12% in 2022 and 2023, indicating that demand for jewelry will be a major driver.

 

Australian gold exports to India have not exceeded $1 million since 2014. However, due to rising demand, Australian gold shipments to India reached $1.2 billion in the first quarter of 2021, up from $0 at the start of the year. According to the Australian Department of Industry, Science, Energy, and Resources, India is set to become a key export destination for Australian gold, considering the large increase in export earnings.

 

Likewise, Australian gold exports grew by 258% in the first quarter of 2021 to Singapore, indicating that the country is quickly becoming a major hub for gold imports and exports to the ASEAN region.

 

Export: Agriculture Products

 

Australian agriculture exports are also on a steady rise, increasing to A$49.6 billion (USD 35.42 Billion) in 2021 from A$44.7 billion (USD 31 Billion) in 2016. According to the Australian Department of Agriculture, Fisheries, and Forestry, the country’s Agri-Food export is expected to be “140% higher in 2050 than in 2007 in real terms”. This is driven by the substantial increase in the value of exports of beef, wheat, dairy products, sheep meat, and sugar. An increase in agricultural exports is expected to reflect on the top commodities of the country.

 

Asian countries, namely India, Indonesia, Thailand, Malaysia, and the Philippines are expected to account for 35% of world consumption by 2030. While Australia is a trading partner for most Asian countries, a study reveals that the per capita consumption of Australian agricultural goods is much below the saturated level. Given the country’s proximity to the APAC region, Australia has a comparative transport cost advantage in exporting to the region. Hence, the expected growth in global Agri-Food demand and imports provides an opportunity for Australian exports to flourish.

 

Export: Coal Briquettes

 

In 2019, Australia was the world’s largest exporter of Coal Briquette with an export value of USD 51.5 Billion. The fastest-growing export markets for Coal Briquettes of Australia between the year 2014 – 2019 are as follows: Vietnam – 2.55K %, Philippines – 746%, Indonesia – 213%, Cambodia – 100%, India – 46.4%, Malaysia – 30.1%, China – 17.6%.

 

 

The global coal briquette market is expected to grow to USD 12,300 million in 2025 from USD 6,760 million in 2018. Due to its high calorific value and low cost, Coal Briquettes have relatively high demand across Steel Producing countries such as China, India, and Japan.

 

Furthermore, Coal Briquettes are the world’s 18th most traded product, with an “average tariff of 2.07% in 2018, giving it the 1,234th lowest tariff under the HS4 product categorization”.

 

A perpetual rise in demand by the APAC region followed by the low tariff presents an opportunity for Australia to ramp up production and meet global demand, as the market is yet to reach a saturation point.

 

Top imports:

 

In 2019, Australia imported $209 Billion of goods and services, with the top growing imports being Electrical Machinery and Equipment, Vehicles and their parts, Pharmaceutical products, Refined Petroleum, and more. The top destinations for Australian imports were China, the United States, Japan, Germany, and Thailand.

 

Import: Electrical Machinery and Equipment

 

Electrical machinery and equipment imports have shown tremendous growth in Australia, rising 14.5% in the last five years from $19.5 billion in 2014 to $22.3 billion in 2019. In 2020, the Asia Pacific region accounted for 45.1% of the global electrical equipment market, followed by Western Europe with 22%.

 

From 2020 to 2025, the global electrical equipment market is predicted to grow at a CAGR of 7.1%, reaching $1.66 trillion in 2025. With the growing global market coupled with Australia’s growing imports of electrical machinery and equipment, the APAC region has an opportunity to expand its exports to Australia.

 

Currently, Australia imports the majority of its equipment from China and the United States. However, in recent years, the country has moved away from its traditional import markets like Germany, the United Kingdom, Italy, France to Vietnam, South Korea, and India.

 

 

Import: Vehicles and their parts

 

From 2014 to 2019, Australia’s imports of vehicles and parts increased by 2.74%, accounting for the second-highest increase in growth value at $773 million. While Australia exported $1.3 billion in vehicles and Spare parts in 2019, it imported $27.5 billion that year, indicating that domestic production is minimal and Australia remains reliant on imports. In July 2021, demand for new vehicles in Australia increased by 16.1% compared to July 2020, despite the lockdown in the country and the shortage of microprocessor chips.

 

Australia’s vehicle and part imports are currently diverse, as the country imports from many different countries.

 

However, when looking at the growth of vehicle and part imports from different countries, it is notable that imports from China (47.2%), Thailand (15.4%), and South Korea (9.52%) have seen rapid growth, while traditional markets like Japan (-2.49%), Germany (-3.68%), and the United States (-5.23%) have seen declines.

 

 

Furthermore, imports from non-traditional APAC nations such as Malaysia, Vietnam, Indonesia, and Mongolia have increased substantially between 2014 and 2019. Therefore, countries within the APAC region have an enormous opportunity to increase their exports to Australia.

 

Import: Pharmaceutical Products

 

From 2014 to 2019, Australia’s pharmaceutical imports climbed by 4.94%, translating to a USD$394 million gain in import growth value. Pharmaceuticals are consistently among Australia’s top 10 imports, with the country importing over 90% of its drugs, thereby, putting it at risk of supply chain disruptions. The United States is Australia’s largest pharmaceutical import market, accounting for $1.6 billion in imports in 2019. Additionally, it is also the fastest-growing in terms of value, with pharmaceutical imports from the US increasing by $694M from 2014 to 2019.

 

 

While the US is Australia’s largest import market, other markets within the APAC region seem to be growing their pharmaceutical exports to Australia. To illustrate, from 2014 to 2019, Australian pharma imports to India increased by 45.1%, 17.1% in Japan, 141% in Hong Kong, 225% in Malaysia, 755% in Vietnam, and 15.% in New Zealand. Such exponential growth suggests that Australia is seeking to diversify its import markets, therefore, several opportunities to countries within the APAC region lie ahead to export its pharmaceutical product to Australia.

 

Import: Refined petroleum

 

Currently, Australia is heavily reliant on mineral fuel imports, with China, Singapore, and South Korea providing 90% of its fuel demand. Australia’s domestic oil production has decreased by a third, as the refineries close due to the inability to compete against larger and more efficient refineries across Asia.

 

Considering domestic oil output is insufficient to supply Australia’s overall fuel demand, it is expected that the fuel imports would become entirely reliant on imports by 2030. This provides APAC countries, specifically Indonesia, Malaysia, Thailand, and Japan, an opportunity to enhance their mineral fuel exports to Australia.

 

According to the Australian Institute of International Affairs Indonesia, India, and Vietnam, appear to be feasible partners for Australia as it strives to diversify its trade.

 

The momentous Indonesia-Australia Comprehensive Economic Partnership Agreement was the key highlight of 2020, strengthening the bond between Australia & Indonesia (IA-CEPA).

 

Trade Agreement

 

The Trans-Pacific Partnership (TPP-11) presents enormous opportunities for Australian firms, particularly within their natural resource export sector. TPP-11 was signed by 11 nations in 2018, with 8 of them being in the APAC region, aiming to reduce tariffs and expand trade opportunities.

 

With trade accounting for one out of every fifth job in Australia, sustaining and developing prospects for Australian exporters is critical to the country’s prosperity. Coupled with Trade Agreements, Australia can capitalize on such shortages by ramping up some of its more popular exports that have grown over time, such as Petroleum Gas, Gold, Agriculture products, Iron Ore and Coal Briquettes. Likewise, the trade agreement also provides Australia the opportunity to diversify its imports markets so it’s not susceptible to supply chain disruptions.

 

The views expressed in this article are those of the author alone and not the WorldRef.


 

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