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  • Writer's pictureDolfinwise

Australia’s reliance on China

In 2007 China displaced Japan as Australia’s largest trading partner. In 2009 it became Australia's largest export market, and in 2017-2018 we sold A$123.3 billion worth of goods and services to China – 30.6% of our total exports. In comparison Japan, still our second most important market, only took 12.7% of our exports.

On the flip side China supplied us with 18% of our imports worth A$71.3 billion. Our total economy, as measured by GDP, was worth around A$1.9 trillion at the time, so our two-way China trade made up about 10% of our economic activity. That may not make us totally reliant on China for our economic health, but any major disruption to that trade means Australia will have many billions of dollars less to run our schools and hospitals, pay pensions and wages, and to maintain our high standard of living.

Should we be looking to other markets?

In times of smooth sailing a high dependence on one trading partner may not be a cause of great concern. However there are many events that can disrupt trade, from natural disasters and pandemics to political tensions. In such times having a range of export markets helps to reduce the impact of interruptions to trade with one partner.

Achieving greater diversity of export markets is easier said than done however, particularly when seeking to replace demand from what is the biggest market for many of our goods and services. For example, China takes 100% of the nickel ore, 95% of the timber and 83% of the iron ore that we export. It also takes time to build trust and develop the personal relationships that underpin trade.

Looking at the big picture, China accounts for around 16% of global GDP. That leaves 84% in which to seek out new markets.

When relationships sour

The political and diplomatic relationship between China and Australia might be described as ‘challenging’ at present, with trade being used as a weapon of influence. Still, there’s more to Australia’s economic story than China, and many Australians may not experience much fallout from these trade tensions. They may even benefit from a surfeit of cheaper lobsters! On the other hand, and in the worst case, the farmers, winemakers, coal miners and timber workers who have seen the fruits of their labour hit with huge tariffs or denied entry into China face potentially catastrophic losses. This would place a general drag on the economy, potentially spark a recession and lead to an increase in unemployment.

The importance of trade

Nations engage in trade because it creates wealth. Our iron ore and coal helped to modernise China, build its infrastructure and allow it to make a huge range of manufactured goods, many of which we then import at much lower cost than we could make them for here.

In support of trade, Australia is currently a party to 14 free trade agreements (FTAs), including one with China. Much of the focus of these agreements is to reduce or remove the tariffs that increase the cost of our goods in our export markets, and where possible eliminate other barriers to trade. For example, the China-Australia Free Trade Agreement provides Australian businesses with better access to Chinese markets for legal, education, financial and tourism services, amongst others.

Perhaps the most comprehensive FTA is the Australia-New Zealand Closer Economic Relations Trade Agreement. Aside from eliminating all tariffs between the two countries, it also harmonises food standards, which minimises regulatory red tape, and removes impediments to the movement of skilled workers between the two countries. Unfortunately, as the recipient of just 3.6% of our exports, it will take a lot of New Zealands to significantly reduce our reliance on China.

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