If you’re an HSC Economics student, you’re probably on the hunt for some relevant case studies. Whilst the China and Australia trade relationship has constantly been in the news, you might be having a hard time trying to understand what is actually going on!
Today we’re looking into the impact of Australia’s dying relationship with China. Now if you haven’t seen Episode 23 with Part 1, you should check that out first, so that you’ve got some contextual understanding.
So, without further ado, let’s dive into the impact of the China and Australia trade relationship!
From Part 1, we know that China has made the power move to cut off Australian exports from wine to meat, coal, timber, and more.
The important thing to note here is that Australia’s exports to China sit at around 27% (often reaching the low 30s) of Australia’s trade to the world. So almost a third of Australia’s total exports go to China, making them a massive trading partner. Further, Australia’s exports to China have almost always been greater than our imports.
With the cancelled trade on a range of Australian industries, we see a massive impact on our economy, from cash flow to employment. Therefore, these protection and trade restrictions are having increasingly negative ramifications on the Australian economy, not to mention the toll it’s taken thanks to the Coronavirus Pandemic.
How does this put Australia at risk?
So China has implemented restrictions and tariffs on a whole load of different Australian exports, but let’s outline some of the core risks that this poses.
These restrictions have undermined the 2015 Free Trade Agreement set between Australia and China, which was designed to encourage overall trade and both countries’ economic growth.
However, we’ve gone backwards. And considering the fact that we’re still dealing with COVID, Australia needs whatever growth opportunities that can be found in order to simply begin recovery.
Now if we were to compare our current economic situation with the Global Financial Crisis (GFC) to gain a bit more context, COVID has had a significantly greater impact on the Australian economy. So the lack of exportation to China and the increased trade tariffs aren’t helping.
We’ve also seen that China has the upper hand in this situation, as throughout 2020, China actually grew 20%, so they’re in a better economic position than Australia. This becomes a major threat to Australia as we aim to recover our economy whilst seeing this plunge in trade.
How Australia Has Been Trying to Improve the Economy
What happens here is that we see immense amounts of pressure being placed on fiscal response. That is, the government needs to inject more money to encourage spending and cashflow, and stimulate domestic growth.
This fiscal response has essentially carried us through 2020 and into 2021. However, it isn’t a sustainable form of economic growth; leaving Australia in a position that’s vulnerable to a financial crisis.
Let’s Talk Numbers
Earlier we mentioned the Free Trade Agreement signed in 2015. Now, if we look at the value of Australian exports to China in 2015 compared to 2020, our numbers have doubled!
We went from $75 billion worth of exports to $150 billion. But if you look at all the trading restrictions and tariffs, from wine and lobster to coal and timber, we’re losing about $20 billion worth of exports.
So the question is, where on earth are we going to find that $20 billion, which has the potential to increase if China continues to cut off trade?
Naturally, Australia has been looking at alternative trading agreements between other countries. However the issue is, China was such a large trading partner, that exporting to other countries still won’t make up that lost 20 billion dollars.
Even with sourcing new countries to export to, there’s a long process of establishing new agreements with different rules and regulations. And setting up these bureaucratic matters take time — time Australia doesn’t have.
Who’s getting hurt?
It’s pretty obvious that Australia’s economy is taking the largest toll in this situation, but more specifically, certain businesses are having a harder time than others. For instance, the wine industry exported a total of 1.26 billion dollars to China, which has been priced out of the market.
What makes matters worse, are the repercussions of this; a domino effect. We see that these businesses have less trade, and a lack of buyers.
Consequently, there are increasing unemployment rates, which are already weak due to COVID. This then decreases business confidence when making the decision to invest in certain companies and industries.
Along the lines of employment, China accounts for 1 in 13 jobs in Australia, so with their cut off in trade, there’s just more and more pressure placed on the unemployment rates in Australia.
Brazil — a Window of Opportunity for Australia
What’s going on in Brazil? A major dam collapsed, and Brazil was unable to export their iron ore.
This downfall for Brazil has created a window of opportunity for Australia, in which we saw 23% of growth in September 2020 because China then imported iron ore from Australia!
So a positive step for Australia — yes. However, it’s only a matter of time before Brazil reconstructs their dam and is operating for exports again. So this is a crucial time for Australia to start creating more trade connects with other countries in demand of iron ore, to start building up these industries again.
It’s also important to note, that Australia’s balance of trade surplus is almost entirely supported by iron ore at the moment, so we need to establish a more sustainable way of finding external stability.
As you can see, the China and Australia trade relationship has a lot of relevance to HSC economics, and there are so many specific areas that you could focus on and integrate within your analysis. Hopefully this rundown of the trade relationship between China and Australia has given you a better understanding of the current and developing situation.
However, if you’re still having a hard time figuring it out, reach out to our team here at Art of Smart if you’d like to get involved!
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Nandini Dhir is a Content Writer at Art of Smart and is currently studying a Bachelor of Arts (majoring in Marketing) and a Bachelor of Advanced Studies (Media and Communications), as a Dalyell Scholar, at Sydney University. She enjoys covering local issues in her area and writing about current events in the media. Nandini has had one of her pieces published in an article with the Sydney Morning Herald. In her free time, Nandini loves doing calligraphy, ballet, and sewing, or is otherwise found coddling her cats.