Gregory O’Brien, Statistics and Mapping
Key issue
Trade has been a key issue for the Australian Parliament ever since the Protectionist Party led by Edmund Barton in government faced an opposition led by the Free Trade Party in the first Federal Parliament. Trade continues to be central to the Australian economy and has grown as a proportion of national income in recent decades as transport, communications technologies and rising living standards in Asia have increased regional markets for Australian exports. However, recent trade tensions with China, Australia’s largest export market, and global trade disruptions brought on by the Russian invasion of Ukraine shows that the debate over trade policy is never settled and each new Parliament must contend with the latest trade issues.
The importance of trade to the Australian economy
One way of visualising the importance of trade to the Australian
economy over time is by looking at the proportion of gross
domestic product (GDP) represented by trade. Figure 1
shows exports and imports on a balance of payments basis since the introduction
of the National Accounts in 1959 and Australia’s trade balance over the period
(the difference between Australian exports and imports in a quarter).
Figure 1 Australian trade as a
proportion of GDP
Source: Australian Bureau of Statistics
(ABS), Australian
National Accounts: National Income, Expenditure and Product (Canberra:
ABS, Dec 2021).
Throughout the 1960s and 1970s, trade represented a reasonably
steady proportion of gross
domestic product (GDP), staying broadly within a 11–16% range.
Since the early 1980s, trade steadily increased relative to GDP facilitated
by economic deregulation and the globalisation of trade supply chains (p.3).
Exports relative to GDP have continued to increase, while imports have been
more heavily impacted by COVID-19 related disruptions. Since 2017 the divergence
between exports and imports has created Australia’s largest trade surpluses
relative to GDP during the National Accounts era.
While Australia is often thought of as a trading nation, these
proportions are not particularly high by international standards. One reason
for this is that, as an island nation, Australia’s lack of land borders reduces
the amount of local or short-distance international trade. Trade represents a
larger proportion of GDP for Australia than the large economies of the US, Japan, and China, and is on par with Indonesia and New Zealand (countries
similarly without major land borders). However, major European economies,
including the UK, and export-oriented economies including South
Korea and Germany, show much higher levels of trade relative to GDP (see Figure
2).
Figure 2 International comparison
of trade as a proportion of GDP, 2021
Source: Oxford Economics, Global
Macroeconomic Databank (subscription)
Figure 2 also shows Australia had a historically large trade
surplus, at 5.7% of GDP in 2021. This was the highest reported amongst these
countries, which includes the export-oriented economies of South Korea and
Germany that historically report consistent trade surpluses. In contrast, the
US and India reported large trade deficits.
It is important to note when comparing across countries that while
international trade balances must balance globally (that is, total global exports must
equal total global imports), for any single country trade surpluses or deficits
can persist over many years or decades. For example, Australia persistently recorded
trade deficits between the 1970s and 2017, as shown in Figure 1, with imports
greater than exports. Since 2017 this long-term trend has reversed as demand
for Australian exports grew while imports fell during the COVID-19 lockdowns. How
long this persists will depend on the trajectory of commodity prices, which
underpin the value of Australian exports.
The composition of Australian exports
While the importance of services exports such as
tourism and education has increased over time, Australia remains primarily an
exporter of resources, energy, and agricultural commodities. Figure 3 presents
the value of Australian exports by major category over the last 25 years and
the respective proportions of total Australian exports.
Figure 3 Australian exports by
major category, financial years
Sources: Department of Industry, Science,
Energy and Resources (DISER), Resources
and Energy Quarterly, March 2022 (Canberra: DISER, 2022), Department of
Agriculture, Water and the Environment (DAWE), Agricultural
Commodities, March 2022 (Canberra: DAWE, 2022), ABS, International
Trade in Goods and Services, Australia (Canberra: ABS, 2022).
As Figure 3 shows, Australian resource exports were
valued at $229 billion in 2020–21, representing almost half of total Australian
exports. This particularly high proportion was due to elevated resource prices compared
with subdued energy prices.
Energy exports fell in 2020-21 to $81 billion from
$116 billion in 2019-20, representing 18% of total Australian exports. However,
coal and natural gas prices have risen dramatically in the 2021–22 financial
year to date, which should increase the share of total exports represented by
energy (and decrease the share represented by resources). Over the 4 years
prior to 2020 - 21, energy exports were around a quarter of total Australian
exports.
Agricultural exports averaged $49 billion a year
over the past 5 financial years and remain an important source of Australian
export revenue. While the value of agricultural exports has remained steady
over this period, the proportion of total exports fell from 13% in 2016-17 to
11% in 2020-21 (as total exports grew faster than agricultural exports). Prices
for many agricultural products, including wheat and barley, have notably strengthened
so far in 2021–22.
Of all Australia’s exports, services have been most
heavily impacted by COVID-19, particularly tourism. From 2018–19 to 2020–2021,
total services exports reduced by more than a third, from $97 billion to $63
billion. Border restrictions severely limited the tourism industry with total
travel exports falling from $59.7 billion in the year to March 2020 to $21
billion in the year to March 2022. Over this period, education-related travel
fell from $38.8 billion to $20.4 billion, a fall of almost half, while other
personal travel fell from $20.9 billion to just $686 million, a fall of over
96%.
The Department of Foreign Affairs and Trade (DFAT)
publishes an annual list of Australia’s top
25 exports and imports as part of its suite of trade publications. As
these are partly based on the (COVID-delayed) ABS International
trade: supplementary information publications, the most recent data is
from the 2019–20 financial year or 2020 calendar year.
Iron ore remains Australia’s largest export, valued
at $153 billion in 2020–21. Coal and natural gas are the next largest export
commodities, with exports valued at $39 billion and $30 billion respectively in
2020–21. Other major export commodities include education-related travel
services ($40billion in 2019-20 prior to COVID disruptions), gold ($26billion in 2020-21),
beef ($8billion in 2020-21), aluminium ores ($8billion in 2020-21), copper ores ($7billion in
2020-21), crude petroleum ($7billion in 2020-21), and wheat ($6.8 billion in
2020-21).
Australia’s major export markets
Over the long-term Australia’s major export markets have shifted
from Europe to East Asia. Figure 4 shows the proportion of total Australian
exports to major markets over the past 30 years.
Figure 4 Australian exports of
goods and services, share of total by country and country group
Source: DFAT, Direction
of Goods and Services Trade, Financial Years (Canberra: DFAT)
Figure 4 shows some of the trends driving Australian export
growth. The rise of China as a key export market is
clear, with 36.7% of Australia’s exports being destined for China in 2020. Remarkably,
the value of Australian exports to China grew from under $7 billion in 2000 to
over $169 billion in 2020. The concentration of Australian export markets is
also evident, with the top 4 markets (China, Japan, US and South Korea)
accounting for almost 60% of all exports. While exports to Japan have fallen in
relative terms it remains an important export market, receiving over 10% of
Australian exports in 2020.
Recent trends in Australian trade with China
China is Australia’s largest trade partner, so recent
tensions between Australia and China have led to trade
sanctions on a range of Australian exports- and caused widespread concern
amongst Australian exporters. These trade sanctions have been placed on major
Australian exports including coal, barley, beef, wine, cotton, lobsters and
timber.
While these trade sanctions have had
a limited impact on Australia’s aggregate exports to China, since higher
exports of iron ore offset the declines in other export categories (see Figure
5 below), they have led to significant disruption in the products targeted. This
disruption has led to trade diversion in the products sanctioned by China,
with many of the exports previously sent to China being redirected to existing
or new export markets.
Figure 5 Australian total
merchandise exports to China and the rest of the world (3-month rolling average)
Source: Source: DFAT, Trade
Statistical Pivot Tables (Canberra: DFAT, 2022).
Figure
5 shows the 2 broad factors that mitigated the impact of China’s trade
sanctions on overall Australian merchandise (goods) exports – increased iron
ore exports offsetting falls in other export categories during the second half
of 2020, and exports to the rest of the world offsetting falls in exports to
China since July 2021 as iron ore exports started to fall back from the spike
in the first half of 2021.
The
left-hand panel of Figure 5 shows Australian merchandise exports to China
broken down into iron ore exports and all other goods exports. The chart shows
the importance of iron ore exports to China with over 75% of the total value of
Australian goods exports to China coming from iron ore exports at the peak in
mid-2021. The strength of iron ore exports to China between May 2020 and July
2021 meant that total Australian merchandise exports to China continued to grow
despite the trade sanctions imposed by China. Iron ore exports to China have
fallen since July 2021 as issues in China’s domestic construction industry and
COVID-19 related lockdowns have slowed construction activity. However,
Australian exports of other goods have recovered from their lows, leaving total
exports to China at a similar level to that prior to the COVID-19 pandemic.
The
right-hand panel of Figure 5 shows total Australian merchandise exports broken
down by those to China and those to all other export markets. This clearly
shows the strong increase in Australian exports to the rest of the world across
2021, which has driven an increase in Australian exports despite the fall in
exports to China since the peak in July 2021.
Trade diversion for exports sanctioned by China
As noted above, trade diversion – diverting exports
which would have been sold to China to other existing and new export markets –
has helped somewhat to mitigate the impact of China’s trade sanctions on
Australian exports of targeted goods. Figure 6 below shows the composition of
exports by destination for 5 of the largest commodities subject to
sanctions: alcoholic beverages (including wine), barley, beef, coal, and
cotton.
Figure 6 Australian exports by
destination, selected commodities
Source: DFAT, Trade
Statistical Pivot Tables (Canberra: DFAT)
Alcoholic beverage exports are the category which
has seen the least trade diversion, with exports for 2020–21 and over the first
9 months of 2021–22 showing steep falls compared with the 3 years prior to
COVID19. Exports of alcoholic beverages to China, which had been worth over a billion
dollars a year between 2017–18 and 2019–20, halved in 2020–21, and have been
very low over the first 3 quarters of 2021–22. While exports to the UK increased in 2020–21, sales to other major markets have not offset the
fall in sales to China.
Barley has been much more successful in redirecting
exports to new markets. The reopening of the Saudi Arabian market, and increased
exports to other Middle Eastern markets, ASEAN countries, Japan, and Mexico,
have helped Australian exports of barley rebound strongly since the lows of
2019–20. While the price paid by Chinese buyers was often at a premium to the
global market price, meaning the barley industry has lost money because of the
sanctions, the successful trade diversion program has seen exports over the
first 3 quarters of 2021–22 already exceed full financial year exports for
the 4 prior years.
Beef was subject to limited sanctions, and exports
to China have not fallen to the degree seen in other commodities, but the
growth in exports to China has reversed. Exports of beef were already quite
diversified and exports to China have fallen in line with exports to other
major markets.
Coal, the largest export industry to face Chinese
sanctions, has primarily diverted exports to major existing customers such as
Japan, India, Korea, and Taiwan. The rebound in the price of coal, particularly
since the Russian invasion of Ukraine, has increased the total value of coal
exports to levels seen prior to the pandemic.
Cotton was hit particularly hard by Chinese
sanctions. Total Australian exports of cotton fell from over $2 billion in 2018–19
to under $500 million in 2020–21, with cotton exports to China falling from
$1.6 billion to $200 million over the period. Over the first 3 quarters of
2021–22, the cotton industry has started to divert cotton shipments to new and
existing markets with large increases in exports to Indonesia, Thailand,
Bangladesh, and Pakistan. This trade diversion has helped recover some of the
export revenue lost from reduced exports to China, but total exports are still
well below the levels in 2017–18 and 2018–19.
Looking at the industries disrupted by the trade
dispute with China shows that any government response will benefit from being
tailored to the industry. Some industries with existing diverse export markets
may be able to redirect exports to existing markets with limited government
support, while other industries may require more extensive government
assistance to open new markets, provide industry support to transition into
other products, or promote increased domestic consumption.
Further reading
Australian Bureau of Statistics (ABS), International Trade in Goods and Services (Canberra: ABS, released monthly).
Department of Foreign Affairs and Trade (DFAT), Australia’s Trade in Goods and Services (Canberra: DFAT, released biannually).
The Department of Foreign Affairs and Trade produces individual fact sheets for most countries and regions to which Australia exports.
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