What impact will the US recession have on Australia ?

[George r]

What impact will the current economic doozies, and the recession in the united states likely have on australia ?

[raspyhook278]

Australia will suffer only to the extent that her exports to the US may decline. However Australia may gain from cheaper imports from the US as the US dollar has been declining in value. The United States is Australia’s third largest export market and its largest source of imports. The United States is also the largest investor in Australia.
Australia and the United States also provide significant competition for each other in several third-party exports such as wheat, uranium and wool and, more recently, in the information technology s
There is a layman and political misconception that increase in imports are bad for a country. The US-Australia Free Trade Agreement was signed on 18 May 2004 and came into effect on 1 January 2005. It’s a comprehensive agreement, with chapters on: Market access for goods, agriculture, pharmaceuticals, cross-border services, financial services, electronic commerce, investment, intellectual property rights, government procurement, competition policy, labour, environment and dispute settlement. Throughout the negotiations, the contents of the agreement were problematic for different sectors on both sides of the Pacific. US farmers managed to keep sugar out of the deal, but will face new competition from Australian dairy imports. Social opposition to the agreement ran high in Australia, the major concern being access to affordable medicine. The FTA commits Australia to provide stronger patent monopolies to US drug companies, directly compromising Australia’s Pharmaceuticals Benefits Scheme (PBS). One year into the FTA, debate broke out in Australia over the impacts. In the first year, US imports into Australia had shot up while Australia’s exports to the US had shot down. Further, US drug companies are not happy with the limited safeguards left to protect Australia’s PBS.
All this is vested interests working on both sides. As the US struggle through the impending recession/ slowdown, both the US and Australia should endeavor to expand the volume of bilateral trade, even if it means Australia importing more cheaper goods from the US. Australia should realize, cheaper US $ is an opportunity for Australia as US exports are going to increase in other countries any way. Rather, other countries, especially Chinaand India will have problem maintaining their growth in exports to the US with the US recession and falling external value of the US dollar.
Thus much will depend on how the US and Australia convert the threat of recession in the US into a great window of opportunity for the next 2 / 3 years. The United States is Australia's fifth largest merchandise export market and most important market for services. It is Australia's largest import source for services and second largest import source for merchandise. The United States is the largest investor in Australia. Australia is the ninth largest provider of foreign direct investment (FDI) in the United States. The United States is one of the top five source countries for visitors to Australia in terms of numbers and expenditure. Thus, Australia and US can benefit by expanding the trade and investment volume in the next few years, instead of worrying who benefits more. The United States plays a major role in the Australian economy. The trade and investment relationship with the US is more dynamic than with any other major trading partner. Trade and investment have grown faster with the US in the last five years than with any other country. The US market accounts for around 11 per cent of total Australian exports and is thesource of one fifth of Australia’s imports. The US supplies one third of all foreign
investment. It is the largest single country source. Australia is host to about 4 per cent of US foreign investment, similar to the share of US investment in Mexico and Japan.Trade and investment between Australia and the US has accelerated in recent years. Australian exports have experienced strong growth to the US, particularly in elaborately transformed manufactures and wine exports. Over the past five years,
merchandise exports to the US grew by more than exports to any other major trading partner. The US also remains the single most important partner for trade in services,
making up almost two thirds of Australia’s services trade. As with goods, services trade with the US has grown more rapidly than with other major trading partners in recent
years.
Foreign investment from the US has been growing at an annual rate of 25 per cent, compared to 17 per cent for investment from all sources over the last five years. The
United States is now host to over 50 per cent of Australia’s overseas investment abroad, having surpassed the UK to become the largest destination for Australian foreign direct
investment in 1998. Australia ranks eighth among foreign owners of US assets and eleventh among destinations for US foreign investment. Australia, being only 4 per cent the size of the US economy is less important to the US
as a trading partner. United States exports to Australia account for just 1.6 per cent of total United States exports and Australia is the source of only 0.7 per cent of United
States imports.
Much of the above analysis is based on data until 2000. But the important fact remain that Australia is susciptible to an adverse effect due to US slowdown not merely in terms of US-Australia trade volumes getting adversely affected but because many other countries may witness an adverse effect on their exports to the US. The time is now for taking advantage of importing cheaper goods from the US rather than cribbing about adverse trade balances.