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Trading Relationship of Australia with the USA, Japan and China

[Student name]
[Institution]
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Table of Contents
Introduction......................................................................................................................................3
Explanation of Australia’s trade on international scale...................................................................3
Australia and China.....................................................................................................................3
Australia and Japan......................................................................................................................4
Australia and the USA.................................................................................................................5
Theoretical grounding......................................................................................................................6
Gravity theory..............................................................................................................................6
HO theory....................................................................................................................................7
New Trade theory........................................................................................................................7
Conclusion and recommendations to improve trade platform.........................................................8
References........................................................................................................................................9
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Introduction
The trading activities among the nations have significantly impacted their revenue’s growth and
performance. with time, Australia has increased its financial growth by working on its business
issues and tightening relationship with the trading partners. The purpose of this essay is to
provide the assessment of trading relationship which is being maintained by Australia with
China, the USA and Japan. The results obtained will indicate that the performance of the
organisations has improved due to this trading relationship or declined. The essay presents the
findings associated with the trading partners and supporting them with trading theories.

Explanation of Australia's trade on an international scale

The trading nation selected here is Australia, which is maintaining trade with several nations.
Based on these trading relationships, the economic growth of Australia is observed in the
following fashion:

Figure 1 GDP of Australia (Statista, 2021)

The figure above indicates that the GDP of Australia has increased steadily, in the last 4 years.
This is because Australia has maintained a strong relationship with different nations. Currently,
the government of Australia is maintaining strong relationships with many nations with China,
the USA and Japan sitting on the top positions. The report presented by DFAT (2019) indicated
that Australia bought goods and services from China, the USA and Japan with a percentage of
24.4%, 8.8% and 9.7% respectively. Due to this reason, the performance of Australia has
improved significantly in the last few years. The explanation of trading relationships maintained
by Australia with China, the USA and Japan can be found below:
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Australia and China

Australia has very close relationships with China because both have been maintaining strong
relationships in terms of international trade. According to the research article of Qi and Zhang
(2018), in 2013, China accounted for 32% of the Australian's total number of exports, with the
largest number of goods and services. Besides, the trading relationship between Australia and
China have been significantly increased because of the good relationships between the nations.
Adding on the findings, Culas and Timsina (2019) reported that different territories in Australia,
have maintained a trading relationship with China in the following fashion:

Figure 2 Territory wise trading relationships (Culas & Timsina, 2019)

The values in the figure above indicate that Western Australia is having a 45% share of trades
with Australia with a percentage of 45%. The research article of Xiang, et al., (2017) also
reported that Australia is by far the largest coal exporter at the global level. For example,
Australia generated 34.6 billion in 2014, only by exporting coal (Xin et al., 2017). The research
article of Wu (2018) reported that textiles and raw materials are rated as the highest exports by
Australia. The share of mineral products done by Australia to China has increased to 70% in
recent times (Wu, 2018). This is also one of the main reasons behind the good relationship
between Australia and China in recent times.
Australia and Japan
The trading relationship between Japan and Australia has developed significantly in the last few
years. The research presented by DFAT (2020) showed that Japan is currently a second-largest
trading partner of Australia, with a value of $88.5 billion in the last year. Japan is currently
facing the issues of maintaining the trading relations in the COVID-19 time just like Australia.
The exports of good to Japan from Australia were observed to
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Figure 3 Merchandising trade between the 2 nations(the EIA, 2020)

The statistics above indicate that the trading relationship between Japan and Australia have
significantly increased. the goods exported from Australia in 2018-19 were $59.1 billion, which
is a value comprised of 15.8%. Some of the major natural exports from Australia to Japan were
natural gas, coal, copper ores and concentrates, iron ore and aluminium (DFAT, 2020). The
results obtained in the figure above also indicate that Australia’s trading activities with Japan
have been increasing rapidly, because of the coal, beef, aluminium and LNG.
The research article of Allen et al., (2017) also reported that Japan has always remained among
the top 5 trading partners of Australia, because of passenger vehicles, good vehicles and refined
petroleum. Total bilateral trade between the two nations since 2018-2019 has significantly
increased and valued at 7.1 billion, mostly in the travel, education and transporting (DFAT,
2020). Due to this reason, both nations have continuously prospered. The Japan-Australia
Economic Partnership Agreement (JAEPA), came into action in 2015, after which the Australian
exporters were found with significant improvements towards marketing access. According to the
findings of DFAT (2020), the development of JAEPA increased trade by 31%, between the two
nations. Due to this reason, both nations are now participating in the Regional Comprehensive
Economic Partnership (RCEP). Hence, this is one of the main reasons why both nations enjoy
bilateral relationships with each other.
Australia and the USA
Australia and the USA are the nations who have been sharing trading relationships for a long
time. The trading relationship between the two has significantly increased because of the
agreements signed between the two. The report by DFAT (2019) presented the below statistics of
trading volume between Australia and USA:
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Figure 4 Trading statistics between Australia and USA (DFAT, 2019)

The statistics in the figure above indicate that number of goods and services trading between the
two accounts for $44 billion and $26.2 billion respectively (DFAT, 2019). The statistics indicate
high Australia has been exporting significantly in high numbers. The reason behind this high
trading relationship between the two is the reason that they both have different items to share.
Besides, the value of Australian goods and services has also increased in 2017-2018. The number
of exports has increased to record $403.2 billion from $373 billion in 2016-2017 (DFAT, 2019).
The following points can be observed related to the trading relationship between the 2 nations
(USTR, 2020):
1. Australia has been the 16th largest export partner with the USA according to the 2019
statistics.
2. The number of goods exported from the USA to Australia in 2019 was worth $26 billion
(an elevation by 2.6%) as compared to 2018.
3. The top exporting categories observed were machinery, optical and medical instruments,
aircraft, vehicles and electrical machinery.
4. The total exports observed in terms of agriculture accounted for $1.5 billion in 2019 from
the USA, which is 19th best contribution to the Australian economy. This comprised of
Pork products ($302 million), prepare food ($130 million), dairy products ($148 million)
and tree nuts ($92 million)
Based on the observations made in terms of the trading relationship between the two nations, it
can be summarized that both of them are currently enjoying perfect relationships with each other.
Both the nations heavily contribute to the economy of each other hence resulting in economic
growth.

Theoretical grounding
Gravity theory
With the help of the gravity model, it can be assessed that foreign trade can be increased by the
counties with an emphasis on more trade. The research article of Xiang, Kuang and Li (2017)
argued that FTA can significantly increase the chances of trade creation between the nations,
however, this significantly influences on trade creation platform. This is because they reported
that dynamic analysis of both Australia and China has resulted in an average trade creation on
RTA with a percentage of 50%. Xiang, Kuang and Li (2017) predicted that this percentage will
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increase to 100%. With the help of gravity equations, Xiang, Kuang and Li (2017) found that
both intensive and extensive goods can be influenced by the RTAs. Anderson and Yotov (2016)
also reported that the volume of FTA by using panel data gravity method. According to the
results obtained, the economic impacts of China and Australia will be based on launching free
trade which took place in 2005. Due to this agreement between the nations, the welfare of the
Australians was observed.
Gravity Theory is based on the specification of bilateral trade between the two nations. It is
commonly measured by looking at the economy of the countries involved, and the distance
which separates them. The research article of Lundmark (2018) argued that Australia's bilateral
trade with different nations will result in a positive outcome. This is because its economy like
GDP is growing. According to them, there is an opportunity for Australia to increase iron ore
export, because it will be traded in the following fashion:

Figure 5 Trade volume of iron ore (Lundmark, 2018)

HO theory
This theory states that two nations producing two or more goods and products will export goods
which are not readily available in the market. According to the Heckscher-Ohlin theorem, the
magnitude of the trading relationship between Australia and China will increase because the
government is always interested in trading with neighbours. The government of Australia can
increase trade of iron ore which is not easily available in the market. In support of the statement,
Feal-Zubimendi et al., (2018) Australia carries a lot of potential in terms of trading, especially
when dealing with English nations. This helps the management to reduce the distance between
trading partners and elevates the chances of sales. Based on these findings, it can be argued that
Heckscher-Ohlin theorem suggests positive outcomes for Australia if it continues its trading
relationship with Japan, China and the USA improves in terms of iron ore and similar products.
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New Trade theory

New Trade theory is based on the argument that the trading relationship between the two nations
can be increased by working on free agreements of trading. The report presented by DFAT
(2019) reported that the trading pattern of Australia is good, especially with China, which
suggests that more benefits will be generated by the two nations. The trading barriers would be
removed, and they will enjoy good trading relationships with each other. The research of
Ravenhill (2017) argued that it is predicted that the trading relationship between the trading
nations of Australia is most likely to grow. The report by DFAT (2019) argued that net economic
benefits between China and Australia will be reaching heights of $10.3 billion by the end of
2025. However, this was based on many assumptions. For example, all the trading barriers
during this period are removed. According to the New Trade Theory, most of the benefits will be
achieved by the agriculture sector of Australia. However, the research article of Bekkers and The
(2019) argued that this relationship is crucial to develop because it will result in many benefits.
For example, production and export of wheat and grain products will increase as predicted by
new trade theory. However, in recent times, the output generated by textiles, footwear and
clothing was less, due to pandemic. Hence, these issues must be kept into consideration by the
government when making decisions related to financial decisions.

Conclusion and recommendations to improve the trading platform

The government of Australia has been proactive when it comes to maintaining trading
relationships with the nations. Currently, the government is enjoying the best trading relationship
with the USA, Japan and China. This essay performed a critical evaluation of the activities
carried out by the government of Australia to maintain a robust free trade with these three. It has
been observed that these nations provide many supporting platforms to Australia by ensuring the
high value of trade. It is recommended that this trading relation with USA, Japan and China
should be increased through agriculture. The focus should be on development and promotion of
free trade agreements. However, Australia must be taking precautionary actions related to the
trading activities when dealing with these three nations (USA, Japan and China) during the
pandemic.
Based on the observations made, it can be concluded that the performance of the organisations
can significantly increase especially when imports will elevate. Currently, exports of Australia
are enjoyed by all the three trading partners identified due to which it enjoys good relations with
them. The government has always focused on the development of bilateral trade relationships
between Australia and the USA, Japan and China, due to which the 21st century has been fruitful
for all of them. A little more focus on more trading areas will allow the government to increase
its GDP with a far better rate. Such as electronics and agricultural goods have the potential to
provide Australia with far more benefits in future as it currently has. The application of theories
also predicted positive results for Australia if certain precautions are underpinned by the
government during trading agreements.
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References
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