- Australia is a mid-sized, trade-exposed economy.
- China accounted for a whopping 23.8% of total trade between Australia and the rest of the world in 2016/17.
- Relations between the Chinese and Australian governments are… strained.
Australia is a mid-sized, trade-exposed economy.
And when it comes to Australia’s largest trade partners, no other nation compares to China.
As seen in the table below from Australia’s Department of Foreign Affairs and Trade, two-way trade between Australia and China stood at $174.7 billion in the 2016/17 financial year, accounting for a whopping 23.8% of total trade between Australia and the rest of the world.
Two-way trade between Australia and Japan, at $68.6 billion, came in a distant second place.
Australia’s export exposure to China is even more concentrated, standing at $110.4 billion in 2016/17, representing nearly 30% of all Australian exports.
China is also Australia’s largest source of imports at $64.3 billion.
Given the trade linkages between the two nations, any shift in demand, even small, will be felt in Australia.
One only has to look at the benefits the Australian economy has enjoyed as China has risen to economic prominence over the past two decades, boosted by its unrelenting demand for high quality, low cost commodities to help urbanise the country.
However, given the increased exposure to China, it leaves Australia vulnerable to a demand shock, be it economic or political.
Recently, the Chinese government has publicly accused the Australian government of being responsible for a deterioration in relations between the two countries.
As Business Insider’s Paul Colgan wrote today, comments from Australian politicians about rising Chinese Communist Party influence in Australia, and possibly the Pacific, are a key source of Beijing’s disillusionment.
The deterioration in relations could have economic consequences, too.
China’s state-run Global Times newspaper ran an extensive editorial today that suggested Beijing could cut Australian imports by billions of dollars and cool diplomatic relations between the countries for an extended period.
The editorial said it was time to “make Australia pay for its arrogant attitudes it has revealed toward China over the past two years”.
Given Australia’s economic reliance on China, as a mid-sized, trade-exposed nation, such a scenario would almost certainly be felt.
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