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  • STATISTICS SECTION, OFFICE OF ECONOMIC ANALYSIS INVESTMENT & ECONOMIC DIVISION

    Australias trade since Federation Page 1

    AUSTRALIAS TRADE SINCE FEDERATION

    Introduction Australias trade has always been a key component of the economy however the composition of Australias trade has changed significantly since Federation. This pictorial article briefly illustrates some of the key aspects of Australias trade since 1901, examining the changing composition of Australias exports and imports in terms of commodities and regions, its importance to the Australian economy, as well as the impact on Australias trade balance and terms of trade.

    Australias openness to world trade An indicator of a countrys openness to the world economy can be measured by calculating the ratio of trade (exports, imports or two-way trade) as a percentage of Gross Domestic Product (GDP). An increasing ratio represents an economy that is becoming more open to the world economy, while a decreasing ratio represents an economy that is becoming less open to the world economy.

    In 1901, Australias two-way merchandise trade1 accounted for 42.7 per cent of GDP (refer to Chart 1). It averaged around 40 per cent of GDP up until the start of the First World War in 1914, then fell sharply during the war because of disruptions to Australias export markets and import sources. The ratio recovered rapidly reaching pre-war levels in the early 1920s (in part due to a wool boom). The ratio then trended down from the mid-1920s, falling to a low of 25.7 per cent in 1931-32 at the height of the Great Depression as protectionist measures were introduced. It remained fairly constant from the early 1930s until the end of

    1 Data on Australias trade in services is only available from 1945-46 onwards.

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    60Chart 1: Australia's two-way trade as a per cent of GDP

    Two-way trade - goods Two-way trade - goods & services

    World War 1

    Great Depression

    WorldWar 2

    Korean WarResourcesboom

    Deregulation of theAust. economy

  • Australias trade since Federation Page 2

    the Second World War, averaging around 28 per cent of GDP. This indicates that Australias openness to the world economy, in terms of two-way trade, was in gradual decline from Federation up to the end of the Second World War.

    Australias openness in terms of two-way trade in goods and services rose rapidly after the Second World War. Two-way trade averaged around 44 per cent of GDP between 1945-46 and 1954-55 (with a record level of 56.3 per cent in 1950-51 during the Korean War commodities boom).

    After the Korean War boom Australian government policy was concentrated on promoting domestic industry capability. This led to the two-way trade ratio falling to between 25 and 30 per cent of GDP during the 1960s and 1970s, the lowest levels in the series history (with a record low of just 24.9 per cent in 1971-72).

    This downward trend in the ratio was reversed during the 1980s with deregulation (including floating of the dollar in 1983) and the opening up of the Australian economy to the world. As the effects of these reforms flowed through the Australian economy the two-way trade ratio grew from around 32 per cent of GDP at the end of the 1980s to 40.9 per cent by the end of the 20th century. The ratio rose to 44.9 per cent in 2008-09 at the height of the resources boom but has since declined and stands at 41.0 per cent in 2014-15, just below the level recorded in 1901 at the time of Federation (42.7 per cent).

    The same trends in terms of openness for both exports and imports can be observed (refer to Charts 2 & 3). A general decline is seen in both ratios from 1901 until the Second World War, with the imports ratio in particular affected by the Great Depression with the ratio falling to a record low of 7.4 per cent in 1931-32. During the Second World War the export ratio declined further than the import ratio.

    After the Second World War both ratios (in terms of goods and services) rose rapidly to peak during the Korean War boom. After the Korean War boom both ratios declined as Australian government policy concentrated on promoting domestic industry. Since the deregulation of the Australian economy in the 1980s both ratios have trended upwards to around 20 per cent by 2014-15. For exports the ratio is slightly below the level recorded in 1901 at the time of Federation (23.0 per cent) but slightly above for imports (19.7 per cent).

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    35Chart 2: Australia's exports as a per cent of GDP

    Exports - goods Exports - goods & services

    World War 1

    Great Depression

    WorldWar 2

    Korean War

    Resourcesboom

  • Australias trade since Federation Page 3

    In comparison, Chart 4 shows two-way trade in goods and services as a share of GDP for the United Kingdom and the United States. For the United Kingdom, as with Australia, the level of openness at the beginning of the 1900s is high (55.3 per cent) which indicates how important trade was to both these countries. The level of openness declines sharply after the First World War to a low during the Great Depression years in the 1930s. After the Korean War, the ratio remains fairly flat until the early 1970s when the United Kingdom joins the European Union. The rate then rises strongly and is around 3 per cent higher in 2015 than 1900.

    The United States in contrast, had a relatively low openness index in 1900 (just 14.4 per cent) and this remained fairly flat up to start of the 1970s (excluding the two world wars). After the 1970s the level of openness has grown steadily to 28.1 per cent in 2015, below both Australia (41.0 per cent) and the United Kingdom (56.8 per cent). The level of openness for the United States over the past 110 years has been far less volatile than for Australia or the United Kingdom.

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    Chart 3: Australia's imports as a per cent of GDP

    Imports - goods Imports - goods & services

    World War 1

    Great Depression

    WorldWar 2

    Korean War

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    70Chart 4: United Kingdom and United States two-way trade as a per cent of GDP

    United Kingdom United States

    World War 1

    Great Depression

    WorldWar 2

    Korean War

    Globalfinancialcrisis

    Post war boom

  • Australias trade since Federation Page 4

    Australias exports overview 1901 to 2014-15 Australias export performance over the first half of the 20th century was concentrated on a much narrower base than today. A small range of major agricultural commodities were exported to a small number of British Empire markets and these made up the bulk of Australias exports. Export growth during the period was slow, with the importance of exports to the Australian economy declining over the period. Export growth was linked to the agriculture cycle, and suffered severe disruptions during both world wars along with a decline in exports during the Great Depression.

    After the Second World War, Australias export performance diversified with resources, manufactures and services exports growing in importance while agricultural commodities declined. Export growth during the period was strong compared to the first half of the century. It became more important to the Australian economy, especially from the 1980s onwards, as the Australian economy opened up to the world. Australias export markets also shifted geographically from Europe (especially the United Kingdom) to Asia (especially Japan and China).

    Over the period 1901 to 1944-45 (refer to Chart 5), Australias merchandise exports2, in 2013-14 price terms3, grew from $6.7 billion in 1901 to $11.0 billion in 1944-45 (peaking at $14.3 billion in 1936-37) representing an average annual growth of only 1.2 per cent.

    Between 1901 and 1913 exports grew from $6.7 billion to $8.5 billion, in 2013-14 prices. Australias exports consisted mainly of agricultural products, which resulted in export performance varying greatly year to year, due to the agriculture cycle. Exports fell during the first year of the First World War before growing back to pre-war levels by 1916-17, but falling again in the last year of the war. Export growth recovered slowly during the 1920s, to reach around $11 billion by 1928-29. Exports fell to $8.6 billion in 1930-31 during the height of the Great Depression before recovering to $13.8 billion by 1939-40. With the start of the Second World War, exports again declined to a low of $8.8 billion in 1942-43 due to the interruptions to shipping and access to our export markets.

    The major exports between 1901 and 1944-45 were agricultural products such as Wool, Wheat and Butter. Gold was also important. Exports were heavily concentrated in these major products, with the top five exports in 1901 making up 66.3 per cent of the total, with Wool on its own making up over 30 per cent (refer to Chart 7). The importance of the top five exports remained high over this entire period, averaging around 61 per cent of the total.

    2 Data on Australias trade in services is only available from 1945-46 onwards. 3 Trade data has been converted to 2013-14 prices based on the Reserve Bank of Australia Inflation calculator. These series do not represent trade volumes but are useful to compare trade values over a long time period without the impact of inflation.

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