1.2 Australia's Pattern of trade 2024.pptx

Patterns of trade

1. 1.2 Australia’s Pattern of trade 2024

2. The pattern of trade What are the two aspects of pattern of trade? What we trade and with whom we trade are both important aspects of the overall pattern of trade 1. Composition of trade – Refers to the pattern of goods and services exported and imported 2. direction of trade Refers to the countries we export to and import from

3. Discuss the extent, composition and direction of Australia’s trade - The composition of trade is a reflection of the structure of the economy - Australia is a small open economy - Goods = 80% of our exports – agriculture, mining & fuels - Services = 20% - education & tourism Australia is a capital intensive industry and therefore high demand for M`s is required High Chinese economic growth = an increase for Australia’s commodities, increasing our TOT, income and employment

4. Complete WACE study guide questions 4.1

5. Trends in Australia’s trade Australia’s protectionist policies of high tariffs meant trade intensity (exports plus imports as a percentage of GDP) was 25% in the 1960’s Government policies to open up the Australian economy, starting in the 1970’s but intensifying in the 1980’s and 1990’s increased Australia’s levels of trade That caused trade intensity to increase to peak at 45% prior to the global downturn caused by the GFC in 2008.

6. Trends in Australia’s trade relationships Asia continues to dominate Australia’s two-way trade flows with 65.2 per cent of the market. China remains our major two-way trading partner. Japan, Republic of Korea and ASEAN also offer significant market opportunities for Australian businesses especially as these economies rebound from COVID-19.

7. Composition of Trade Australia’s focus is on its primary industries, where it has a comparative advantage. Primary industries include agriculture ( e.g. wheat , wool and beef) and mining (e.g. coal, iron ore and gold). Australia is less competitive in manufactured goods and tends to import them in large quantities. Agricultural exports have declined due to protection in other countries, price fluctuations and frequent natural disasters such as droughts and floods. Meanwhile, mineral and service exports have risen due to higher commodity prices and fewer barriers to international travel. Some economists argue Australia relies too much on primary industry exports.

8. Composition of merchandise trade: two main categories, How can Australia’s exports and imports be classified? by the extent and level of processing (value adding*) involved in their processing 1. Primary products (Unprocessed and Processed) and 2. Secondary/Manufactured products (STM and ETM), effectively classify goods by stage of processing, as defined below. Unprocessed primary products are those that have undergone minimal, or no, transformation (value-adding*). Examples are live animals for food, wheat, crude petroleum, ores and concentrates. Processed primary products represent a higher stage of processing. Examples are chilled or frozen meat and seafood, butter, cheese, flour, canned fruit and vegetables, wine and automotive spirit.

9. Classification OF manufactures Classified as either STM’s (simply transformed Manufactures), used as inputs into production of other goods STM consist mainly of basic metal manufactures, chemicals and other intermediate manufactured goods which will be used as inputs into other goods. Examples include flat-rolled steel products, chemicals, leather and cotton yarn. ETM are generally what would be termed 'finished goods'. ETM covers a vast range of goods, including machinery, whitegoods and other household wares, motor vehicles, clothing and footwear. *value adding very important – STEEL IS MORE VALUABLE THAN IRON ORE – FRIDEGE IS MORE VALUABLE THAN STEEL VA contributes to EG – INCOME – EMPLOYMENT UNPROCESSED is homogenous – iron ore in brazil is pretty much the same as iron ore in Australia 60% of our exports

10. How are economies linked and integrated into the global economy? Exports contribute 23% of Australia’s GDP 24% of Australian workers are directly involved in trade related activities Australia is a major exporter of resources to the world Iron ore, coal, natural gas, gold and bauxite. Australia imports large quantities of capital goods, machinery, motor vehicles, electronics and consumer goods We have become dependent on other countries for our goods both for consumption and production

11. Historical composition of exports For much of the 20 th century, agriculture (primarily wool, but also meat, dairy and cereal), accounted for 60% to 80% of Australia's exports. Since the 1950’s, mining (especially iron ore and coal) has grown from 10% to 50% of Australia's exports.

12. Current composition of exports Most exports from Australia are primary products (62%) The most significant of these are iron ore (39%) and coal (14%) of total export values, but also natural gas LNG, oil, wheat, aluminium and copper. Other exports include Services (17%) e.g. education, travel Manufactures (13%) Other (8%) e.g. gold

13. Discuss the extent, composition and direction of Australia’s trade Despite disruptions to supply chains due to COVID-19, including border closures and other responses by Australia and our trading partners, exports remained steady. Australians exported just under $475 billion worth of goods and services worldwide during the 2019-20 reporting period with China remaining our largest market.

14. By Sector – Australia's Exports Despite disruptions to supply chains due to COVID-19, including border closures and other responses by Australia and our trading partners, exports remained steady. Australians exported just under $475 billion worth of goods and services worldwide during the 2019-20 reporting period with China remaining our largest market. Minerals and Fuels accounted for 52 per cent of Australia’s total exports, with a value of $245.8 billion in 2019-20. Services accounted for a 23 per cent share of exports, worth $92.3 billion. Rural exports and manufactures accounted for 11.7 per cent and 11.4 per cent, or $46.7 billion and $52.3 billion respectively. Gold was Australia’s sixth-largest export, at 5 per cent or $25.7 billion.

15. Australia's major goods & services exports 2021 (a)

16. Historical composition of imports The composition of imports to Australia has not changed significantly over recent decades Australia has always been a big exporter of manufactures, which account for 60% of its total imports. current composition of imports Most imports to Australia are manufactures (57%) The most significant of these are motor vehicles (8%), telecommunications equipment (3%) medication (3%) and computers (2%) Others include Services (21%) e.g. tourism and transportation Primary products (19%) e.g. crude and refined oil Other (3%)

17. Imports Australia imports a wide range of goods and services. Since the start of the new millennium, at least half of our total imports have come from economies in Asia. Australia’s imports fell by over 5.7 per cent during 2019-20 due to travel related and other restrictions. Total value fell from $421.4 billion in 2018-2019 to $397.9 billion in 2019-2020. Personal travel services received by Australians abroad was the largest hit with a decline of 28.1 per cent.

18. By Sector – Australia's Imports Imports are an important part of Australia’s economic prosperity. They help maintain a robust, competitive economy and improve choice for consumers. Imports were fairly evenly spread among four of the five sectors in 2019-20, with just a twelve percentage point difference in the share of the sector between them. The largest share of Australia’s imports by sector were intermediate goods, comprising raw materials and components used by Australian firms to make goods for domestic and export markets. Consumption goods, services, and capital goods followed in order, with gold contributing the smallest share.

19. Australia's major goods & SERVICES imports 2021 (a)

20. Complete WACE study guide questions 4.2 & 4.3

21. Direction of trade The 1960’s saw the rapid growth in the Japanese economy Later, other parts of Asia experienced high rates of economic growth, making them favourable trading partners for Australia In 2009 China replaced Japan as Australia’s largest export market, and the Asia pacific region is now more important to Australia’s economy than the EU and USA. Most exports from Australia are to Asia (75%) The most significant of these are China (28%) Japan (16%) Korea (6.5%) India (4%) and New Zealand (4%). Other major markets include EU (9%) and USA (5%) current direction of trade

22. Historical direction of imports About half of imports to Australia are form Asia (49%) The most significant of these are China (15%) and Japan (7%) but also Singapore (6%) and Thailand (4%) Other major import sources include USA (12%) and EU (20%) of which the single largest economy is Germany (4%) current direction of imports In the 1970’s, a majority (60%) of imports to Australia came from Europe and the USA but also from Japan. In the decades since, Australia has imported from Asia In recent years this has been particularly from China and ASEAN countries (Thailand, Malaysia, Indonesia and Vietnam)

23. Australia's top 10 import sources 2019-20 (a)(b)

24. Gateway to the region Our easy access to Asian markets makes us a gateway for global companies to grow. Twelve of Australia’s top 15 export markets are in the Asia and Oceania region ( Department of Foreign Affairs and Trade , Trade statistics 2021-22). They attracted exports worth A$471 billion in 2021-22. This represented almost 80% of Australia’s total exports of goods and services. China is our largest trading partner, accounting for 27% of our two-way trade. More than 40% of our exports go to Japan, Korea, India, the US, Taiwan and Singapore. The Association of Southeast Asian Nations (ASEAN) is also a significant bloc for Australian trade. It accounts for more than 12% of Australia’s total exports. Australia maintains strong links with traditional partners. The EU and the UK accounted for 11% of total trade in 2021-22, and the US for 7%.

25. Direction There has been a slowing in the direction of Australia’s trade as Asian region (mainly china is experiencing a decrease in economic growth at 6.7% therefore less demand for our commodities & causing reduction in our ToT -We import luxury goods elaborately transformed manufactured (ETM) eg : Capital – elastic goods -Exporting simply transformed manufactured (STM) eg : iron ore, coal, beef, petroleum, wheat & aluminium – relatively inelastic -There has been a shift in the demand of trade due to trade blocs – members trade with other members (EU, NAFTA) eg : lower trade barriers (decrease in protection) means ASEAN countries trade among each other -Trade blocs among members has risen – causing trade shifts  

26. Complete WACE study questions 4.4 & 4.5

27. Discuss the extent, composition and direction of Australia’s trade Australia’s top ten trading partners in order were China, the United States, Japan, the Republic of Korea, United Kingdom, Singapore, New Zealand, India, Germany and Malaysia. China remained our largest two-way trading partner with a 28 per cent share of our two-way trade valued at just over $250 billion. The United States moved up as our second two-way trading partner, replacing Japan, but with only nine per cent of the market valued at $80 billion. The United Kingdom moved up from seventh to become our fifth two-way trading partner replacing Singapore who moved to sixth. Australia’s comparative advantage is in land & primary commodities including iron ore, steel & coal

28. Trade Intensity One way to benchmark the depth of Australia’s trading relationships with other markets is to compare how much we trade with that partner relative to how much the world as a whole trades with the same economy. Trade intensity is the sum of exports and imports over GDP. On this basis, for example, in the case of China the ‘intensity’ of our trading relationship with that market would be given by the ratio of the share of China in Australian exports to the share of China in the world’s exports. Trade intensity measures an economy's integration with the world economy. A higher trade intensity means an economy is more susceptible to external shocks in the world economy.​

29. Trade Intensity Two-way trade Asia continues to dominate Australia’s two-way trade flows with 65.2 per cent of the market. China remains our major two-way trading partner. Japan, Republic of Korea and ASEAN also offer significant market opportunities for Australian businesses especially as these economies rebound from COVID-19.

30. Complete WACE study guide questions 4.8

31. Integration means reliance The Australian economy has relied on foreign investment to complement its domestic savings Recent mining boom would not have been possible without direct foreign investment Immigration has been an important source of skilled labour – has led to population growth 28% of Australia’s population was born overseas.

32. Factors affecting the pattern of trade 1. comparative advantage 2. competitive advantage Occurs when producers develop an advantage over their competitors in international markets. What contributes to competitive advantage? i . comparative advantage – (rural, mineral and energy resources) ii. Free trade agreements – (promotes free trade – regional, multilateral, bi lateral) iii. Foreign investment – (funds productive capacity, innovation transfer of technology and managerial expertise) iv. Well educated, highly skilled workforce – (leading in fields – science, medicine and engineering) V. non-price competitiveness - (innovation, design, reliability, after sales service) Vi. Strong institutions – Commerce supported by strong banking and financial systems as well as legal security.

33. Factors against competitive advantage 1. Australian Dollar – commodity currency – exchange rates is influenced by global demand for our commodities High dollar – makes it difficult for exporters to remain competitive in international markets Commodity prices are less stable than manufacturing prices – causes greater fluctuations and creates uncertainty 2. a regulated market – the need to comply to certain industry standards and legal requirements adds to business costs 3. high direct taxes – (company tax and income tax) MNC’s can transfer some of the costs o/s putting domestic producers at a disadvantage 4. labour supply – Australia does not have a comparative advantage in labor 5. high wages – low productivity – high wages can be justified if productivity is high. Australia’s productivity is low in comparison 6. lack of economies of scale – Australia has a small domestic economy.