Home Book trading The Stats Guy: Australia’s trading economy in turbulent times

The Stats Guy: Australia’s trading economy in turbulent times

7
0

Demographer Simon Kuestenmacher looks at how rising food prices caused by natural disasters and global geopolitical unrest will affect Australia’s economy.

Let us not shy away from the horrors of war and the obvious humanitarian disaster that rising global food prices will create in the developing world, but try to understand how global developments might impact Australia economically.

Exports and imports are generally divided into goods (things you can touch) and services (things like tourism or education). We will only look at goods for today’s analysis since they make up the lion’s share of our domestic exports and imports. We will also only be looking at pre-pandemic data from 2019 to see how Australia’s usual business model is impacted.

Australia exports US$1.44 trillion worth of products while it imports only US$1.16 trillion.

The difference between these numbers is our trade surplus. Australia is a business that makes a handsome profit of US$280 billion.

What do we sell to the rest of the world? Mostly things that we extract from the ground (mining) or grow in the ground (farming). Our exports are quite simple to produce.

The mining industry, for example, employs only around a quarter of a million workers (or 1.9% of our 13 million workers) but produces 12% of our GDP. How do we manage such a thriving mining sector?

Small nation, lots of land

Easy – we are a small nation on a big piece of land. We are 25 million people at the head of the resources of an entire continent. The profit we make from mining depends less on the quality of work of each individual worker in the industry than on world prices.

Our exports pass through a limited number of ports because it is relatively expensive to ship to destination ports: a ship full of coal is worth much less than a ship full of electronics. Transporting our heavy ores and minerals by sea is expensive, but it is the only way. This means that we depend on the high seas trade routes to get our exports to a few destination ports.

Our maritime security is entirely dependent on the United States Navy, which keeps international waters secure and enables an uninterrupted flow of trade – Peter Zeihan has written an excellent book on this. If the United States were to become an enemy and so inclined to do so, it could easily disrupt most of the inward and outward trade of our most important trading partners. From a security perspective, we are completely dependent on the United States for our economic prosperity.

Who buys our products? We do not have a varied clientele. The top three countries buying from us are China (39%), Japan (15%) and South Korea (7%). No less than 83% of goods exported by Australia are destined for Asia. From a business perspective, we are clearly an Asian nation.

The good news about our exports is that geopolitical and trade experts predict that the United States will continue to ensure global maritime security and that demand across Asia for our exports remains strong (see animated map of Asia from my previous column). The prices of the limited range of products we sell are subject to increase in the short term.

Ukraine and Russia export a lot of things that Australia also exports. Agricultural and industrial production will not return soon in war-torn Ukraine, and sanctions exclude Russian exports from world trade. Rising prices for our exports may sound great, but we better take a quick look at Australian imports before popping the champagne.

Unlike our exports, our imports are dominated by complex goods such as machinery, household appliances, vehicles, electrical equipment and pharmaceuticals, among other products. Even a quick glance at the import tree map shows the diversity of products we source from overseas. This does not only include the items that we consume as individuals, but also the machines, spare parts, computers that companies use to increase our GDP.

We will have to prepare for everyday life at home and at work to become more expensive. Both Russia and Ukraine are major rare earth metal powerhouses. These are important elements in the semiconductor industry, which means that the global production of everything with computer chips will become more expensive and the total production volume could also decrease.

What to do when costs rise

The risk of skyrocketing trade prices is that there is less trade and the benefits of globalization are reduced. Without our global free trade system running like a well-oiled machine, global fertilizer prices are rising. Australia can easily withstand rising food prices since we locally produce wheat, meat and dairy products. However, the poorest developing countries will find it difficult to feed their populations. Expect terrible news about this in the second half of this year.

I don’t think belt-tightening is the right approach. Less global trade is not a good thing. It will not reduce global emissions or allow us to live in a self-contained ecological paradise. Around the world, nations and peoples depend on global trade networks for the essentials of life.

We need to make sure we invest in sustainable products when buying anything from toys and building materials to machinery and clothing. Whenever possible, choose the durable and best quality product.

In a world where trade continues to flow, where companies continue to invest despite high prices, Australia has everything to gain (or at the very least maintain its high quality of life).

This story first appeared in our sister publication The new daily.

Local news matters

Media diversity is under threat in Australia – nowhere more than in South Australia. The state needs more than one voice to guide it, and you can help with a donation of any size to InDaily. Your contribution goes directly to helping our journalists uncover the facts. Please click below to help InDaily continue to uncover the facts.

Donate today

Powered by
Press Patron