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April 7, 2009

Globalisation & Diversity – week 7

Read the 3 handouts – “International Trade Theories”; “international Product Life Cycle”; and “Market Access for Developing Economies” – then explain in less than 300 words, what you see as an appropriate model for your country, and give a commodity example (such as the Australia-Japan example with computers and wine).

In the area of Minerals and fuels, Australia can be seen to have an Absolute Advantage in trade to countries such as Japan ($32 billion) and a Comparative Advantage with China ($24 billion) commodities of coal ($21 billion) and iron ore ($16 billion), the two largest export markets and export commodities in 2006-2007 (DFAT, 2008a). In contrast, in 2006-2007, Australia’s total goods and services imports from China and Japan were valued at $28 billion and $19 billion respectively (DFAT, 2008b). With a trade surplus of $17 billion ($36 billion total goods and services exports minus $19 billion imports), it would appear that Japan is Australia’s most profitable trading partner (DFAT, 2008b), which appears to follow the Absolute Advantage model. Comparatively, Australia has a trade deficit with America of $18 billion ($15 billion in total exports minus $33 billion in total imports), and a trade deficit with China of $2 billion ($26 billion in total exports minus $28 billion in total imports) (DFAT, 2008b) making America Australia’s least profitable trading partner, suggesting the Comparative advantage model of trade.

So, between Australia and Japan, we appear to have an ideal situation where Japan buys Australia’s iron ore and coal; in return Australia buys Japan’s manufactured goods including motor cars and motorcycles. While Australia does have its ‘own’ motor car manufacturing industry it does not have a motorcycle manufacturing industry, hence all motorcycles are imported into Australia (POV, 1993); with over 70% coming from Japan (POV, 1993; AGSM, 1997). In terms of the overall trade surplus between the two countries being in its favour, Australia appears to be the major beneficiary, however, both countries supply the other with commodities that the other does not have, although they could access these commodities from other countries.

References:

AGSM. (1997). The Australian Motorcycle Company: Born Global or Stillborn? Retrieved April 7, 2009, from Australian Graduate School of Management, http://www2.agsm.edu.au/agsm/web.nsf/AttachmentsByTitle/HUNWICK.PDF/$FILE/HUNWICK.PDF

DFAT. (2008a). About Australia: A successful global trader. Retrieved April 7, 2009, from Department of Foreign Affairs and Trade, http://www.dfat.gov.au/facts/global_trader.html

DFAT. (2008a). About Australia: Exporting to Australia. Retrieved April 7, 2009, from Department of Foreign Affairs and Trade, http://www.dfat.gov.au/facts/exporting_to_aust.html

POV. (1993). MOTORCYCLE USE IN VICTORIA. Retrieved April 7, 2009, from Parliament of Victoria, http://www.parliament.vic.gov.au/rsc/1993cycle/ch2.htm

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