Impacts of Free Trade Agreement between China and Australia

After eight years of negotiation, China and Australia finally drew a free trade deal on last Monday. This agreement signals a transformational change in the economic relations between China and Australia because trade tariffs in dairy, beef, and horticulture products will be completely eliminated within the next couple years. Without a doubt, it will greatly facilitate the trade between these two countries. On the other hand, Canada, one of Australia's main competitors, is now worried about its exports to China.

China and Australia began their trading partnership forty years ago, and currently China is Australia’s largest two-way trading partner, with total trade increasing by thirty percent in the last financial year. The new agreement is expected to bring trade growth to new heights, as there are now more open policies regarding exports and cross-border acquisitions. Later last week, after the signing the agreement, the largest Chinese dairy company, New Hope, established an investment fund of $500 million in Australia. "You will see more announcements come [in dairy]. There is a ramp-up of inquiry [from China]," said Barry Irvin, the chairman of ASX-listed Bega Cheese. Chinese demand is going to keep increasing in the next decade, as China is executing an economic reform to change to a consumption-oriented economy and as the middle classes continues to grow. Australia could tap into such increasing demands and sell its products and services, which will boost export growth for Australia and help it recover from the 2008 global financial crisis.

The deal is urging Canada, the main competitor of Australia in agricultural food and natural resources, to initiate a trade talk with China, as Canada is losing its ground in exporting goods and services to the world's second-largest economy. China erased the 3% tariff on metallurgical coal from Australia in the deal, which increases the price competitiveness of Australian coal in China as opposed to Canadian coal.

Many experts consider the free trade deal a one-sided gain for Australia, but China certainly benefits in the long run, as the agreement aids China's vision of assuming a larger role in regional trade agreements.