Here's Commonwealth Bank Chief Economist Michael Blythe On What The Japan-Australia Trade Deal Really Means

Beef The Big Winner Picture:Getty/Clive Rose

Australia’s trade agreement with Japan announced yesterday is being positioned as a boon for the economy and local industry, agriculture and business as a whole. But isn’t a trade deal by its very nature a bilateral agreement predicated on an equal share between the two nations of whatever spoils it generates economically?

Business Insider asked CBA Chief Economist Michael Blythe for his thoughts.

Business Insider: What do you see as the primary benefit to Australia of the trade agreement?

Michael Blythe: With all the focus on China we tend to forget that Japan is still our number two trading partner. And their importance in some of the key components of our trade, such as LNG (actual and prospective), is probably greater. So anything that improves access for our exporters to a very big market is going to be a positive from an Australian perspective. The agricultural component is obviously significant given the importance of the sector in Australia and some of the pressures it has been under. Agricultural trade has always been a tough nut to crack so this is a significant breakthrough that could act as a template for other countries, or make it more likely that other countries would follow suit.

BI: The Government is portraying this as a win for Australia but if that is the case why would Japan sign it?

MB: Japan is also gaining greater access to our markets for their exports as well of course.

Economic theory has it that everyone wins from international trade. Indeed a lot of post WWII growth and rise in living standards is tied in with the breaking down of trade barriers and the expansion of international trade. The standard textbook response is that countries benefit when each nation specializes in goods for which it has a comparative advantage and trades those items for other products.

BI: How much do you think the agreement will add to Australian GDP over the next year and over 5 years?

MB CBA: Always difficult to measure the benefits. Mainly because they take a long time to flow through and it’s hard to say what is down to the trade deal and what reflects other drivers.

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