Trade expansion and the bilateral trade imbalance
Under AUSFTA, two-way trade in goods and services increased considerably. Australian exports of goods and services to the US market grew by 50 per cent from US11.1 billion in 2004 to US$16.7 billion in 2011. Over the same period, US exports of goods and services to Australia more than doubled from US$20.8 billion in 2004 to US$43.4 billion.
Under AUSFTA, two-way trade in goods and services increased considerably. Australian exports of goods and services to the US market grew by 50 per cent from US11.1 billion in 2004 to US$16.7 billion in 2011. Over the same period, US exports of goods and services to Australia more than doubled from US$20.8 billion in 2004 to US$43.4 billion.
Total two-way trade reached US$60 billion in 2011 when the main Australian exports to the US market were beef, aircraft and parts, wine and other meat, while the main US goods exports were vehicles, engineering equipment, engines and motors. Services trade accounted for about one third of trade and was dominated by travel, tourism and business services. In 2011, Australia ranked as the 14th largest market for US exporters, while the US was the 33rd largest market for Australian exporters.
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| Trade Expansion and the Bilateral Trade Imbalance |
Currency fluctuations are very important in explaining trade trends and deficits. Between 195 and 2000, Australian exports to the United States almost doubled from A$7.4 billion to A$16.7 billion, assisted by favourable movements in exchange rates as the A$ fell from an average of US74 cents to US 58 cents. Then from 2001 to 2005, exports fell sharply as the A$ appreciated from US58 cents to US76 cents (DFAT, Trade Topics, Spring).
Initially AUSFTA turned around a slide in Australian exports to the United States and in the 4 years to 2008, Australian exports grew by an average of 6.5 per cent (A$ terms) compared to a decline of 5 per cent in the 4 years before. Exports of manufactured goods to the US rose by 8.3 per cent per annum over this period, compared with a decline of 5.5 per cent in the preceding 4 years. However, the remarkable strengthening of the A$ since then in response to the resources and energy boom has widened the bilateral deficit ± but contributed to a stronger overall Australian trade position (because of large surpluses with China, Japan and a number of other countries). The GFC also hit the US market harder than Australia in the short term and contributed to a wider bilateral deficit.
The 5-year trend for bilateral trade (in A$ terms) from DFAT (2012) shows imports from the US of goods rose at an average annual rate of 2.5 per cent while services rose at 6.3 per cent annually. In contrast, Australian goods exports fell at an average rate of 1.8% annually and services exports fell by 1.3 per cent annually in Australian dollar terms ± because of the 35-40 per cent appreciation of the A$ against the US dollar. This effect was particularly noticeable in services such as travel, where US travel imports rose by an average of 14 per cent annually as over one million Australians visited the United States in 2011 to take advantage of lower airfares, while Australian bilateral travel exports (US tourists) were flat.