The Australian economy received a significant boost last week after the announcement that Australia and China would sign a free trade agreement pumping an additional $18 billion into the local economy over the next decade, and potentially offsetting the effects of the mining boom that many say is coming to an end.
Australia is Chinas largest trading partner with bilateral trade reaching $150 billion.
The agreement stipulates that a range of goods and services between the two countries will become tariff free with the agreement being phased in over the next 10 years.
Senior government MP Josh Frydenberg told ABC radio “I think this is a game-changer,” “It will supercharge our trade with China. Up to 95 percent of our exports over time will enter the Chinese market tariff free.”
Guest Post by Andrew Masters from FiboGroup
The Winners
The agreement gives substantial access for Australian service providers across key sectors including health, tourism ,financial, engineering, legal, education, telecommunications, construction, aged care services, mining, manufacturing, architecture, urban planning and transport.
The losers
Tariffs will remain on sugar, wheat, canola, cotton, rice and maize. with China refusing to budge on these products. The Australian government had to make concessions for the deal to go through although the tariffs will be reviewed in three years.
Not all rosy
The agreement has raised concerns for mining safety standards as Chinese mine owners will be able to bring in their own Chinese workers on temporary work visas.
Australian Mining Association chairman George Edwards says he fears for the health and safety of workers.
“I know from having gone to China for nearly 40 years that the standard in mines in China are not as high as they are here,” he told reporters at the Asia Pacific Resources Conference on Tuesday.
“I believe they are used to lower safety standards in general and therefore it makes it difficult for them to operate in an environment with higher standards.”
There is also the question of Australia’s unemployment rate, with the number hovering above 6% and the government expecting it to rise further in the nearest future. Although the agreement stipulates that Chinese companies must try to find Australian workers before offering the job to a Chinese employee, the mining union says this will be difficult to monitor and will only put further strain on the unemployment rate.
The Australian dollar came under fire on a number of fronts last week closing on Friday at US86.72 cents down from US87.46 cents the week before.
RBA assistant governor Christopher Kent mentioned that intervention to cut the exchange rate was not off the table. “We haven’t ruled it out,” Dr Kent noted.
“It’s still there as an option, if needed.” saying the dollar is “too high, relative to our fundamentals”.
In his latest speech last Tuesday RBA governor Glen Stevens also reaffirmed his commitment to push the Australian dollar lower by noting “the decline in the exchange rate will be of some help here, but the currency remains above most estimates of its fundamental value, particularly given the further declines in key commodity prices in recent months. An exchange rate more in line with fundamentals would be a helpful contributor to a balanced growth outcome”
Prime Minister Abe of Japan announced snap elections last week lifting the US dollar to a seven year high against the yen and causing the Aussie dollar and a basket of other currencies to take a fall. There are rumors swirling that the Japanese prime minister may try to delay a planned sales tax hike if he is re-elected.