The Status of the Terms of Trade between Australia and other Economies

Running Head: Australian Terms of Trade
The Status of the Terms of Trade between Australia and other Economies
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Australian Terms of Trade 2
Table of Contents
Introduction....................................................................................................................................3
Terms of Trade between Australia and China.................................................................................3
Terms of Trade between Australia and Japan.................................................................................5
Terms of Trade between Australia and UK.....................................................................................5
Terms of Trade between Australia and US.....................................................................................6
Terms of Trade between Australia and Germany...........................................................................6
Terms of Trade between Australia and India..................................................................................7
Terms of Trade between Australia and Indonesia..........................................................................7
Terms of Trade between Australia and Korea................................................................................7
Conclusion......................................................................................................................................8
Bibliography....................................................................................................................................9

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The Status of the Terms of Trade between Australia and other Economies
Introduction
There exists the problem of scarcity of resources for all nations in the world. There is no
single country that can be said to have all the necessary resources necessary for it to produce all
goods that are needed in its economy (McDonald, 2017). This thus creates a need for trading
among countries. What the economies does is to produce a surplus of what they can produce
more efficiently and trade it with other countries for other goods and services that they may
need. Trading among countries is dated many 1000 years ago. The globalization of world
economies have led to improvements in the industrialization of nations and has played an
important part in promoting international trade. International trade involves importation of
foreign goods and the exportation of domestic goods. There are many reason as to why nations
make a decision to import certain goods or services. One is that some imports are cheaper than
local goods, this helps in lowering the prices for domestic goods thus improving consumers’
standards of living. Other imports may be of better quality. Others may be easily available in
comparison to local goods. In some instances, a good may be completely unavailable. An
example is oil in Japan, Japan imports all the oil it consumes, and it’s one of the largest oil
consumer nations.
Australia is one of the nation that greatly embraces international trading. This economy is
both a great exporter and importer. Terms of trade is a ratio of the changes in exports index
prices to changes in imports index prices. The terms of trade for an economy is said to be
increasing if the increase in exports is greater than the change in imports. Terms of trade =
(Index of export prices / Index of import prices *100). The result is thus as a percentage such that
if above 100%, the terms are improving, and if below, the terms are worsening
(Economicsonline.co.uk, 2018). The terms are improving if for every unit of export sold, more
units of imports can be bought. This paper will analyze how Australia has performed in terms of
trade with countries like; China, US, UK, Japan, Indonesia, Korea, India and Germany. Factors
affecting this trade will also be discussed. The data used in the analysis is obtained from the
Australian Department of Foreign Affairs and Trade (Dfat.gov.au, 2018).
Terms of Trade between Australia and China
The terms of trade between Australia and China are increasing given that the growth on
export from the year 2016 to 2017 had been greater than the growth on imports during the same

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period. The growth on exports was 21.8% and the growth on imports was 8.4%. When these two
percentage increments are divided and the result multiplied by 100 the result is 12.4%
improvement in terms of trade. The article “China trade with Australia soars, along with war of
words” by (Needham, 2018) confirms that there has actually been a significant growth in the
terms of trade between these two economies relying on the records made in 2017. In fact he
noted that there was a 23% increase with Chinese importation from Australia growing by 37%.
The major factor contributing to this trade growth in the increment in the demand of
Australian resources by China (Holmes, 2017). Needham also noted that the existence of free
trade agreement between these two economies resulted in the increased benefits to Australia; this
information was provided by Huang Songping the spokesman of General Administration of
Customs. Myers (2016) and Hurst (2015) noted that the trade agreements was put in place in
December 2015 with 86% of Australian exports entering China duty free. In overall, trade
between the two economies is 14% of China’s foreign trade in general. Amadeo (2018) pointed
out that terms of trade determines the efficiency of a country in trading with the other. Before
this 14% growth in China-Australia foreign trade, there had been a decline for two consecutive
years.
The major factors driving this growth in trade are; Australia’s supply of natural gas and
Iron ore is huge, so the growth in demand for these products by china by 27% and 5%
respectively raise the overall imports. Huang said that owing to the environment impacts of the
usage of coal, China is trying to shift from consuming coal to gas; this has resulted in increased
demand for liquefied natural gas. Again the Australian suppliers of iron ore has benefited much
from the rise in average import price by 28.6%. The enforcement of United Nations Security
Council sanctions by China may have contributed to increased trade with Australia since it
resulted in a fall in the imports that China made from North Korea; the fall was 81.6%
(Needham, 2018).
According to Gruen (2017), from Australia there has been a big improvement in the
prices of mineral commodities exported; the rising development and urbanization of China has
resulted in an increased demand which has resulted in rising prices. Thirlwell (2016) noted that
China is undergoing an economic transition to become more market-based and this has had direct
and indirect impacts on terms of trade. The direct impacts are by its increased demand for
imports and the indirect impacts is on the rising price of imports. The economic ties between the