AUSTRLIA IS DEPENDENT ON

TRADE WITH CHINA

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Contents
Background Information on Australia’s Trade with China ...................................................................... 2
Australia’s Trade with China Compared to Other Countries .................................................................. 3
The Chinese Economy ............................................................................................................................. 4
Interest Rates ...................................................................................................................................... 4
China’s Gross Domestic Product ......................................................................................................... 4
Decision ................................................................................................................................................... 6
Bibliography ............................................................................................................................................ 7

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Background Information on Australia’s Trade with China

International trade is when goods and services are imported and exported with another
country. This type of trade allows countries to expand the amount of good and services
available to consumers (Heakal, 2018). Australia trades with many different countries
including China. China has been Australia’s largest importer and exporter since 2007. Before
China, Japan was Australia’s largest trading partner (Australia-China Relatoinship Overview,
n.d.). Since Australia trades with China, there are a lot of benefits. These benefits include,
that China is the world’s largest trading country, that China has an incredibly high gross
domestic product, and that as the Chinese economy becomes more developed, their gross
domestic product will only continue to grow stronger (Advantages of Doing Buisness in China
, n.d.). Australia entered into a Free Trade Agreement with China on the 20 December 2015.
The Free Trade Agreement with China is beneficial to Australia as it makes Australian
products more competitive (China-Australia Free Trade Agreement , n.d.) by eliminating
tariffs on Australian made products. A tariff is a tax that governments place on goods from
overseas (Government, Guide to using ChAFTA to export or import, n.d.). The reason that
Governments do this is to protect local businesses as the tariff makes imported goods more
expensive to purchase. Australia’s top five imports from China include telecom equipment
and parts, computers, furniture, mattresses and cushions, prams, toys, games and sporting
goods. The top five exports to China are iron ore and concentrates, coal, wool and other
animal hair, and gold. In 2016-2017, Australia traded a total amount of 157,222 million
Australian dollars with China (Government, China). The reason that Australia does so much
trade with China, is partly due to the fact that the free trade agreement exists, but also
because China is relatively close to Australia thereby reducing the cost of freight. Since
Australia does trade so much with China, Australia is dependent on trade with China.

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Australia’s Trade with China Compared to Other Countries

Australia also trades with the United States of America, Japan, the Republic of Korea, the United
Kingdom, New Zealand, Singapore, Thailand, India and Germany. These countries, including China, are
Australia’s top ten trading partners (Government,
Australia's top ten two-way trading partners, n.d.) The
largest export to these countries was iron ore and
concentrates at 53,703 million dollars (AUD), and the
largest goods import from these countries was passenger
motor vehicles at 21,403 million dollars (AUD)
(Government, Australia's Top Ten Goods & Services Exports
and Imports, n.d.). The reason that Australia’s largest export
is iron ore is because Australia has the comparative
advantage in the product. Out of the top ten largest iron
ore producers, Australia is the second largest in 2014,
producing 660 million tonnes and China is the largest,
producing 1500 million tonnes (The World's Biggest Iron
Ore Producers, n.d.). However, China still imported 51,708
million Australian dollars’ worth of iron ore (Government, China). The reason that China did this, is
because China is the world’s largest iron ore importer. China imports so much iron ore because
China’s iron ore is of an inferior quality to that of the rest of the world (The World's Biggest Iron Ore
Producers, n.d.). In 2016-2017, Australia’s total merchandise trade with China was 157,222 million
Australian dollars (AUD) (Government, China). When compared to Australia’s 2nd largest trading
partner, the United States of
Weights in the Trade-weighted Index Per Cent America, Australia only traded 64,
273 million AUD (Government,
Currency Weight (From 1 December 2017)
Chinese Renminbi 27.4607
Australia's trade in goods and
Japanese Yen 10.7028 services , n.d.). This is a difference
United States Dollar 10.2931 of 92949 million AUD. This is a
European Euro 9.7972 massive difference between
South Korean Won 5.3606 Australia’s first and second largest
United Kingdom Pound Sterling 4.3203 two-way trading partners. The
New Zealand Dollar 4.2085
difference supports that Australia
Indian Rupee 4.0454
is dependent on China. When the
Singapore Dollar 3.8829
Thai Baht 3.4398 trade weighted index of these
(Australia, 2017) countries is compared, it can
clearly be seen that there is one
country that Australia trades with more than any other. In the table from the Reserve Bank of
Australia, it is clear that China is Australia’s largest trading partner by far because of the weight that
the Chinese currency holds compared to the other currencies. In the table, the Renminbi is 16.7579
percentage points higher than any other currency (Australia, 2017). This then means that Australia
does more trade with China than any other country. Due to this large gap, in can be seen that
Australia is dependent on China.

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The Chinese Economy

Interest Rates
In the Graph from Trading
Economics, it can be seen that
over the last ten years, Chinese
interest rates have changed from
7.5% in 2008 to 4.4% in 2018 and
has been 4.4% since the end of
2015 (China Interest Rates, n.d.).
According to the graph, the
Chinese interest rate, partially
follows a trend. The trend is that
the interest rate falls dramatically
for a short period of time, then it stays steady. However, there is an anomaly to this pattern in the
graph. This anomaly occurred in 2011, and it is when the Chinese interest rate increased. However,
after the interest rate finally stopped increasing in the middle of 2011, it stayed at a rate of 6.5% until
the middle of 2012, then it fell in a pattern of which it would quickly drop, stay at that rate for a short
period of time before dropping some more. After a while it stayed steady for a period of longer than a
year. The Chinese interest rate reflects a lot on the Chinese economy. Such as the fact that the
Chinese currency is strong when compared to other currencies. This can be known as interest rates
affect a countries exchange rate and a high interest rate means a strong exchange rate. Exchange
rates, and the factors that affect them such as interest rates, are important when it comes to trade
because if the Chinese currency is stronger then other countries, they will have a higher import rate
as it will be inexpensive for China to buy merchandise from other countries, whereas if the exchange
rate is low, then China is likely to export more, as it will be cheaper for other countries to purchase
Chinese goods and services.

China’s Gross Domestic Product

The gross domestic product (GDP) represents the dollar value of all goods and services that are
produced over a period of time. A countries
GDP is used to measure the health of the
country (Kramer, 2018). In 2016, China’s GDP
was 11199.15 billion US Dollars. This is an
increase of 134.48 billion US Dollars from
2015 (China GDP, n.d.). When China’s GDP is
compared to Australia’s GDP of a mere
1204.62 billion US Dollars (Australia GDP, n.d.)

it is clear to see that China’s GDP is far superior.

This is an important piece of information as it
shows the strength of the Chinese economy.
Since the GDP is so high, it means that the
Chinese economy is strong. Another thing to note
when it comes to China’s economy, is that their
GDP has been increasing. Currently, the Chinese
annual growth rate is at almost 7% (China GDP

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Anuual Growth Rate, n.d.). This shows that China’s GDP is only going to increase which therefore
means that the Chinese economy will only grow stronger. However, when the graph from trading
economics is considered, it can be seen that over the last ten years, the GDP annual growth rate has
fluctuated greatly (China GDP Anuual Growth Rate, n.d.). However, this does not mean that the GDP
will not continue to grow. The way that a countries gross domestic product is related to the countries
amount of trade is because trade affects a countries GDP. The way that the GDP us affected is
because when the GDP is calculated, types of spending are added, yet imports are subtracted from
the amount. This could lead some people to believe that imports have a negative impact and that the
amount of imports that a country has should be lowered. Especially considering that exports are
added to the GDP. However, imports are subtracted from a countries GDP because other spending
types have components of imports (McTeer, 2013).

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Decision
Australia is dependant on China. This is proven as China is Australia’s largest two-way trading
partner (Government, Australia's top ten two-way trading partners, n.d.) and the fact that China has
a lot of foreign investment within Australia. If China was to stop trading with Australia, then the
Unites States of America, would become Australia’s top two-way trading partner as currently the US
is Australia’s second largest trading partner (Government, Australia's top ten two-way trading
partners, n.d.). This means that the largest total amount of trade Australia does with one country
will be 64,273 million AUD (Government, Australia's trade in goods and services , n.d.) rather than
the 157,222 million AUD that Australia trades with China in 2016-2017 (Government, China). Also, if
China pulled out their investment in Australia, then it will be detrimental to Australia as in 2016-
2017 Chinese investment in Australia was at 87,246 million AUD (Government, China). Therefore,
when all of the information above is considered, it can be seen that Australia is dependent on trade
with China. However, this dependency needs to change to ensure that Australia is not reliant on
China alone. In order for this to change, it is recommended that slowly Australia starts to decrease
the amount that they trade with China, and slowly start to increase the amount that it trades with
other countries by identifying other sources of supplies.

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Bibliography
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https://tradingeconomics.com/australia/exports

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https://tradingeconomics.com/australia/gdp

Australia, R. B. (2017, November 30). Weights for the TWI. Retrieved from Reserve Bank of Australia
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https://tradingeconomics.com/china/interest-rate

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Kramer, L. (2018, Febuary 5). What is GDP and why is it so important to economists and investors?
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