The past decade-and-a- half has been one of singular achievement for Australia. Dumping the protectionist foreign policy, spanning two-thirds of 20th Century, into the dustbin of history, Australia is forging ahead with a commitment, bordering, in some enlightened circles, on a religious fervour, to open markets and globalization, which has underpinned its remarkable growth. Judging by empirical evidence, open markets have truly paid rich dividends and the Australians are preparing to reap the rewards of the whirlwind of globalization. However, voices, injecting doses of caution, are growing.
RELEVANCE OF TRADE The gains garnered are eloquently summed up by the Australian Government’s Department of Foreign Affairs and Trade ): “Trade is essential to our way of life. Trade creates jobs, boosts incomes in local communities and increases standard of living… As a country of 20 million people, we benefit from improved access to the global marketplace of more than six billion people. ” Surely, it would have gladdened Ricardo’s heart. Over the years, Australia’s dogged pursuit of free trade regimes has translated into clear economic gains.
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Significantly, more than 80 per cent of Australian exporters are small and medium enterprises, indicating a wide dispersal of wealth. The export growth is reducing the cost of Australia’s imports and improving the terms of trade. More so, because exports have become more diversified and sophisticated, and agricultural products, in tough competition, are increasingly finding lucrative markets overseas. Imports have also provided Australian companies with many of the cost-effective inputs, and consumers with greater choice, products at competitive price.
“If Australia hadn’t reduced tariffs for passenger motor vehicles, Australian families would pay an additional $10,000 on a $ 30,000 family car. ” Exporters tend to invest more in technology, management techniques and the skills of their workers. Exposure to world markets provides firms with access to new technology. Fresh ideas are diffused, helping to raise productivity rates and boost income levels . Australia’s productivity growth in the 1990s was faster than that of the United States and the second-fastest of all developed economies.
Since 1988 Australia’s average tariff rate has fallen from 15 per cent to 3. 5 per cent; yet unemployment is now at its lowest level in 30 years. While tariffs have fallen, manufacturing output has risen by around 40 per cent and the volume of exports fivefold. Australia’s economy is underpinned by the services sector. Four out of every five Australian workers are employed in service industries. Liberalisation of key service industries over the past two decades has led to technology transfer, foreign investment and greater price competition and choice. Services exports accounted for $31. 4 billion in 2002. Australia’s tourism exports are worth $16. 3 billion a year and education $4.
2 billion. These compare with Australia’s annual exports of wheat valued at around $4. 1 billion, wool $3. 6 billion and aluminium $4. 3 billion. In 1999-2000 Australian exports of films, television and video programmes amounted to $175 million, and education exports $4. 2 billion in 2002. The Australian government has mustered data to press home the point that prosperity from gains of free trade and globalization have percolated down to its regions. A case in point is South Australia’s Zinifex, which operates a multi-metal smelter refinery, by far the largest employer in Port Pirie.
It provides more than 800 full-time and contractor positions and pays almost $60 million in yearly wages. It generated more than half a billion dollars revenue for South Australia in 2005-06. Zinifex’s Memorandum of Understanding with Umicore, a Belgium-based materials technology company, to combine their zinc smelting, lead and alloying businesses, is expected to be finalised at the end of 2007. The combined assets of Zinifex and Umicore will make it a global market leader, producing about 1. 2 million tonnes of zinc and alloys and about 250,000 tonnes of lead a year.
In the last decade, APEC data shows that exports have more than doubled to nearly AUS$5 trillion, and economies have generated 195 million new jobs and 70 per cent of the increase in the world’s economic growth. The share of people in poverty has more than halved. Income per person has more than doubled. Higher incomes have enabled better access to safer drinking water, increased expenditure on health and education, thereby promoting regional stability, and generating larger markets for the goods and services Australia can provide.
Kudos to the APEC grouping! Frankel and Romer (1999) in a recent research found a strong causal link between openness, growth and income. For every one percentage point increase in the ratio of trade to gross domestic product (GDP), income per person is two to three per cent higher. The International Monetary Fund (IMF) has estimated that world incomes would increase by at least $250 billion if agricultural protection were abolished. Once, again this would have delighted Ricardo. THE RISE OF THE DRAGON Take the case of Australia-China relationship.
Trade and investment linkages with China have been contributing to Australia’s phenomenal economic growth. , the annual growth in services has averaged 26 per cent to 2004. In 2003, services trade was valued at almost $1. 9 billion, making China one of Australia’s fastest growing and seventh largest services export markets. However, the most prominent feature is Australia’s large and growing deficit in elaborately transformed manufactures (ETMs). The main reason is the surge in Australia’s imports of China’s ETMs.
In 2004, Australia imported $A15. 9 billion of ETMs from China and exported $A1. 0 billion. In 2004, ETM imports from China increased 27. 7 per cent on the previous calendar year, and the deficit in ETMs widened to a record $86. 3 billion. ETM imports increased in value from $96. 9 billion in 2003 to $105. 1 billion in 2004, and exports from $18. 5 billion to $18. 8 billion. Australia’s poor overall ETM exporting performance is of grave concern. The Australian Manufacturing Workers’ Union (AMWU) has noted that for every plasma television Australia imported, it had to export ‘in the vicinity of 150 tonnes of iron ore’.
China’s elevation in Australian imports is evident in Table 2. In 1994, imported manufactures from China accounted for 5. 4 per cent of all Australian imported manufactures. China ranked fifth behind the US (23. 2 per cent), Japan (20 per cent), Germany (6. 7 per cent) and the United Kingdom (6. 4 per cent). In 2004, imported manufactures from China accounted for 14. 6 per cent of all imported manufactures, second only to the US (16. 3 per cent). China’s competitive advantage lies in manufacturing. Between 2001 and 2004, Australia’s top 10 merchandise imports from China were all manufactures.
China’s top 10 merchandise imports from Australia between 2001 and 2004 were either minerals or agricultural products. In 2004, China’s agricultural imports from Australia totalled $US2. 41 billion, consisting mainly of wool, wheat, barley, cotton, meat and dairy products. The same year, Australia’s agricultural imports from China totalled $US233 million. Since 1995, trade in agricultural products between Australia and China has increased at an annual average rate of 8. 8 per cent. China is still a small market for Australian agricultural exporters. Only six per cent of total Australian agricultural exports go to China.
Only three agricultural commodities- wool, wheat and barley- are among the top ten Australian exports to China. The other seven are mineral exports. An Australian Parliament Committee, which investigated bilateral relations, and submitted its first report in November 2005, however, has rejected the worrisome notion that continued trade with China will render Australia nothing more than ‘a quarry, a farm and a nice place to visit’. In terms of bilateral investment, the Australian Industry Group has observed that while Australian investment in China totalled $1. 2 billion at June 2003, it has reached a plateau in recent years.
Given the size and rapid growth in Australia-China trade, the investment figures are ‘modest’. While China is Australia’s second largest export market and the second largest source of imports, it is the 18th largest investment destination for Australia and the 14th largest investor in Australia. However, Chinese investment in Australia has increased markedly in recent years, though from a low base, with a cumulative contractual investment value of about $2. 2 billion and an actual value of $59 million up to December 2003.
According to Invest Australia, the total stock of Chinese investment into Australia to the end of 2003 was $2. 86 billion. Australia runs a trade deficit with China. In 2002–03, the deficit in merchandise trade increased by $1,540 million to $4,999 million. This was due to a $2,517 million increase in imports but only a $977 million in exports. According to the Australian Bureau of Statistics, imports of most commodity groups increased, particularly office and automatic data processing machines (up $374m) and telecommunication and sound recording and reproducing equipment (up $326m).
The largest increases in export were in metalliferous ores and metal scrap (up $254m) and petroleum, petroleum products and related materials (up $201m). In 2005, the deficit with China rose further and stood at $5,427 million. Australia’s trade deficit with China is expected to improve but will rely on a boost from the export of resources to narrow the deficit. “From 2006 the first deliveries of the $25 billion gas deal between the North West Shelf and Aus/ALNG in Guangdong Province will begin to flow. ”