Australia—Exports resilient to geopolitical shocks
Australian exporters are on the frontline of trade disruptions resulting from increasing strategic competition. Over the past 18 months, China has implemented trade disruptive measures targeting over a dozen Australian agricultural and mineral products. This has limited access for many exporters to an attractive market offering sheer size and complementarity with Australia’s economy. Nevertheless, Australia’s export performance has been resilient. While record commodities prices and a bumper agricultural harvest have helped, many industries that experienced trade disruptions measures are successfully mitigating their losses.
New academic research explores how exporters were able to adapt to the demand shock of losing access to China’s market. Exporters pursued three strategies—reallocation, deflection, and transformation. Reallocation was the most common strategy and relatively seamless for bulk commodities with deep global markets. For instance, cotton was redirected to Bangladesh and Vietnam while certain mineral ores and concentrates were redirected to Europe and Japan (Chart). Strong demand and supply dynamics helped many industries in this process—essentially just a reordering of international trade flows. Deflection involved using alternative routes to market. For instance, cattle being redirected to Australian abattoirs that still had market access. Transformation involved changing production processes to sell unaffected products. For instance, barley farms planted canola instead.
Australia’s export resilience owes to the international competitiveness and agility of Australia’s export industries—underpinned by an open, dynamic and rules-based multilateral trading system. Australia continues to use the World Trade Organisation (WTO) to monitor and challenge trade practices where they do not align with members’ WTO obligations. To this end, Australia has initiated WTO dispute settlement proceedings challenging China’s measures concerning Australian barley and wine.
