Free Trade and Protection

Significance of Trade to the Australian Economy

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Christian Bien

Learning Objectives

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Why is Trade Significant?
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Reason #1: Expands a country's consumption possibilities by accessing other country's production through imports

In other words, it means a country can consume goods it cannot necessarily produce itself. For example, think of coffee beans from Brazil, Colombia or Indonesia. 


Reason #2: Trade increases a nation's output through exporting

Think about Australia's vast iron ore resources. We don't have the population and construction demand to need all that iron ore, however, we can export the surplus at a premium to other countries that need iron ore to make steel. 


Reason #3: Exports pay for imports a country needs to enjoy high standards of living

The richness of the Australian economy can be contributed to the success of key exports such as the iron ore, education and tourism. These exports are used to pay for imports such as holidays, electronics and cars. 


Reason #4: Access to a larger market

Exporting enables Australian firms to produce for a world market, a potential 7 billion rather than a smaller domestic market. With access to a larger customer base, exports where Australia has a competitive advantage can be sold at the highest premium and at the largest quantity. 


Reason #5: Broader consumption

Importing allows Australian households to consume goods and services that cannot be produced domestically or is too expensive to produce domestically. 


Reason #6: Specialisation and economies of scale

Engaging in trade permits increases specialisation, economies of scale, increased productivity and higher real incomes. 


Reason #7: Economic growth

There is a strong link between countries with fast growth rates in trade and high rates of economic growth.

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A Brief Look at Our Trade Intensive Sectors
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Australia exported a total of $373B of goods in 2020, $134B were sent to China (DFAT, 2020). Australia also imported $421B of goods in 2020, $78B sourced from China (DFAT, 2020). 


Australia's industries are highly dependent on trade, with four out of five Australian jobs related to the Australian export sector. Below we will look at the dependency of trade upon the tourism, mining and agricultural sector.

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Mining
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Iron ores & concentrates makes up Australia's largest export valued at $77.1B, Australia's top export (DFAT, 2020). Australia is the number one exporter of iron ore and coal in the world. Coal makes up Australia's second largest export valued at $69.6B, Australia's second top export (DFAT, 2020).

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Tourism & Education
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Image: International Student Numbers by Country, Trade and Investment at a Glance 2020, Department of Foreign Affairs and Trade. 


Prior to the recent COVID-19 outbreak, education was our biggest services export at $37.5B for education-related travel (DFAT, 2020) and personal travel at $22.4B (DFAT, 2020). Personal travel also makes up Australia's largest import at $46.3B (DFAT, 2020). These numbers are likely to change following the pandemic.

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Agriculture
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Despite being a small population, as a nation we have an abundance of land to contribute towards agricultural exports. Rising Asian incomes have also seen a growing taste for high quality agricultural exports from Australia, such as: 


  • Beef, with exports valued at $9.4B (DFAT, 2020) - 9th largest export 

  • Wheat, with exports valued at $3.6B (DFAT, 2020) - 19th largest export 


Our top trading partners for beef has been China and the United States.

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