Trade Analysis Report: Analysis of Australian Trade Transformation

This report provides a comprehensive trade analysis of the Australian economy, examining its transformation since the 1970s due to trade liberalization. It explores the shift in trading partners, the impact of international markets on structural changes, and the Australian economy's strategies for managing these transformations, including protectionist policies and a focus on natural endowments. The report includes tables with Revealed Comparative Advantage (RCA) data for 1996, 2006, and 2016, analyzing the comparative advantages of various industries, particularly in milk and agricultural products. The analysis highlights how trade liberalization has enhanced the country's export capabilities and the influence of the international market on the mining sector. The report also discusses the Australian government's emphasis on import substitution policies and the impact of external trade on the country's overall trade profile.

Running head: TRADE ANALYSIS
Trade Analysis
Name of the Student
Name of the University
Author Note

1TRADE ANALYSIS
Table of Contents
Answer to question 1:......................................................................................................................2
Answer to question 2:......................................................................................................................3
References........................................................................................................................................9

2TRADE ANALYSIS
Answer to question 1:
a. Trade transformation experienced by the Australian Economy
Since the initiation of the 1970s, the Australian economy has been facing two-way trade
owing to trade liberalization policy. The major portion of total trade earnings is related to the
international trade. However, the two-way trade is not now as effective as it was in the early
decades like the 1900s. The imposition of hike tariff rate as well as a change in the world
demand of the products is considered as the cause of this deteriorating trade performance. The
Australian economy as a member of the OECD countries is stated to achieve one of the lowest
ranks over the last decade (Jaimovich and Merella 2015). Apart from trade barrier, geographical
location also provides low business exposure to the Australian trading sector. Meanwhile, the
composition of trading partners has faced a notable change over the last four decades. The
United States (US) and Japan, instead of the United Kingdom (UK), are recognized as two
significant trading partners of the Australia. The emerging existence of the Asian countries
including China, South Korea and Japan in the international business also possesses serious
threat to the Australian economy (Siudek and Zawojska 2014). Further, recent changes in the
foreign investment account for the change in Australia’s export pattern.
b. structural transformation due to international market
Trade activity enhances the economic efficiency by the means of providing new
opportunities to both the producers and consumers. The producers get encouraged to improve the
quality and quantity of the products in order to hold a goodwill position in the international
competitive market (Leromain and Orefice 2014). On the other hand, the consumer can access to
huge products probably at cheaper price owing to the liberalized market structure. The

3TRADE ANALYSIS
international market also leads to the change in the trade composition of a country. Contextually,
the Australian economy has shifted its export interest to the mining products from the
agricultural products. Further, international market puts the domestic market into vulnerable
situation due to extensive competitive structure. On the account of this challenge, the economy
needs to emphasize on the multiple factors including the natural endowments and workforce in
order to enhance the comparative advantage of the individual country.
c. The way followed by the Australian economy to manage structural transformation
On the account of the global exposure, the Australian economy has been found to adopt
several trade protectionism policies, such that, imposition of the tariff rate and export facilitating
strategy (Harzing and Giroud 2014). All the trade protectionism polices are developed with the
aim of protecting the domestic market from the negative externalities associated with the
international trading sector. Considering the trade policies adopted by the Australian authority,
the economy incurred huge cost from the foreign exporters due to hike in the tariff rate. The
growth rate of the economy slowed down due to the contraction in the export earnings. The
modification of the trade policies was turned into a serious concern for the economist
(Karunaratne 2014). Therefore, the country started focusing on the enhancement of its existing
natural endowments in order to gain the comparative advantage in the global market. This in
return has made the country as the notable importer of the agricultural products to the Asian
countries.

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Answer to question 2:
a. This section provides the three required table as proposed in the study to identify which types
of industries hold comparative advantages in which sectors over the consecutively three decades,
such that, 1996, 2006 and 2016.
1996
Rank Industrial Code Industry Name RCA
1 22 Milk and cream 7.9197
2 682 Copper 2.7158
3 735 ships and boats 1.333
4 541 Medicinal and pharmaceutical products 1.048
5 671 Pig iron, spiegeleisen, sponge iron 1.035
6 25 Eggs 0.619
7 861 Scientific, medical, optic, means. 0.512
8 712 Agricultural machinery and implement 0.500
Table 1: RCA report for the year 1996

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9 724 Telecommunication apparatus 0.368
10 285 Silver and platinum ores 0.221
Source: (Created by the author)

6TRADE ANALYSIS
2006
Rank Industrial Code Industry Name RCA
1 22 Milk and cream 7.623
2 682 Copper 3.397
3 541 Medicinal and pharmaceutical
products
1.354
4 861 Scientific, medical, optic, means. 0.810
5 285 Silver and platinum ores 0.777
6 735 ships and boats 0.409
7 712 Agricultural machinery and implement 0.406
8 724 Telecommunication apparatus 0.211
9 671 Pig iron, spiegeleisen, sponge iron 0.124
10 25 Eggs 0.116
Source: (Created by the author)
Table 2: RCA report for the year 2006

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2016
Rank Industrial Code Industry Name RCA
1 285 Silver and platinum ores 16.542
2 22 Milk and cream 5.048
3 682 Copper 4.552
4 861 Scientific, medical, optic, means. 0.883
5 541 Medicinal and pharmaceutical
products
0.876
6 712 Agricultural machinery and implement 0.358
7 724 Telecommunication apparatus 0.346
8 735 ships and boats 0.256
9 25 Eggs 0.192
10 671 Pig iron, spiegeleisen, sponge iron 0.028
Source: (Created by the author)
b. Analysis of the comparative advantage
As per the findings, Australia majorly exports milk and agricultural owing to having
comparative advantages regarding these two sectors. The WTS data completely supports the
findings as Milk sector is reported to hold the top ranks over the three concerned decades. The
comparative advantage helps the country to enhance the economic growth and productivity of
Table 3: RCA report for the year 2016

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the available resources of the country. The policy makers should encourage those export sectors
which hold comparative advantage with respect to the international market (Costinot et al. 2015).
Initiation of the trade liberalization has been found to enhance the capability of the Australian
economy. The endowment of the foreign exporters has been expanded compared to the pre-
liberalization period. The widespread trade sector is now easily accessible to the traders. Further,
the producers related to the export sectors get governmental assistance in terms of lowering
export tax or subsidizing production cost (Laursen 2015). Considering the fact, the Australian
government has started emphasizing on the import substitution policy in order to encourage the
exporters. The current state of the country’s trade profile is the consequence of both the revealed
comparative advantage (RCA) as well as external trade impact. The emerging growth of the
international market is stated to have an influential impact on the international trade (Levchenko
and Zhang 2016). The exporters have obtained new advantages in the several manufacturing
sectors apart from milk sector. This results in the enhancement of the growth in the mining sector
experienced by the Australian economy over the last decade. Australis’s trade exposure to the
mining sectors is the result of the emerging demand of the Asian countries like China, Japan and
Korea. Since the 2000s, the country has gained considerable trade advantages in the metal
production, such that, copper and silver.

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References
Costinot, A., Donaldson, D., Vogel, J. and Werning, I., 2015. Comparative advantage and
optimal trade policy. The Quarterly Journal of Economics, 130(2), pp.659-702.
Harzing, A.W. and Giroud, A., 2014. The competitive advantage of nations: An application to
academia. Journal of Informetrics, 8(1), pp.29-42.
Jaimovich, E. and Merella, V., 2015. Love for quality, comparative advantage, and
trade. Journal of International Economics, 97(2), pp.376-391.
Karunaratne, N.D., 2014. The Mining Boom, Productivity Paradox, Dutch Disease & Monetary
Policy Challenges for Australia. Global Journal of Management And Business Research.
Laursen, K., 2015. Revealed comparative advantage and the alternatives as measures of
international specialization. Eurasian Business Review, 5(1), pp.99-115.
Leromain, E. and Orefice, G., 2014. New revealed comparative advantage index: dataset and
empirical distribution. International Economics, 139, pp.48-70.
Levchenko, A.A. and Zhang, J., 2016. The evolution of comparative advantage: Measurement
and welfare implications. Journal of Monetary Economics, 78, pp.96-111.
Siudek, T. and Zawojska, A., 2014. Competitiveness in the economic concepts, theories and
empirical research. Acta Scientiarum Polonorum. Oeconomia, 13(1).