Trading places for an economic win
A hunger for mineral exports pushes Tasmania to the top of the nation’s economic pile, although a threat to impose carbon tariffs on Australia could hurt the state,
Tasmania’s economy is currently one of the best performers in the nation. Our economy is larger than it was before Covid-19 and our rebound has been faster than any other state or territory. Last week’s employment figures showed a strong rebound in jobs. But it may come as a surprise to hear that a strong merchandise exports sector is one reason for this.
As a small island economy, international trade plays a key role in supporting local businesses, creating employment, and generating income – it underpins the state’s economic engine.
Tasmanian exporters have faced major challenges over the past 18 months.
Shifting consumption patterns, supply chain disruptions and geopolitical tensions saw the value of Tasmanian international goods exports soften in the middle of 2020. But as global markets and supply chains adapted through the pandemic, so did our exporters.
In fact, the recovery was so strong that the value of Tasmanian goods exports reached a record high of $3.8 billion over the past year (4.3 per cent higher than the year prior) — not even a less favourable Aussie dollar could hold the state back. An outstanding feat considering the value of Australian goods exports plateaued over the same period.
Almost 90 per cent of Tasmania’s international goods exports fall into one of three categories — manufactured goods, crude materials, or food.
So, what has been driving this sudden surge in the value of Tasmanian products and where are they going?
Crude materials have been the standout for the state — supported by strong growth in the value of iron ore and concentrates exports — thanks to the recent surge in global iron ore prices. And with the Riley iron ore mine restarting in the state’s NorthWest, further growth is expected.
Strong commodity prices have also assisted Tasmania’s largest export category — manufactured goods (which mostly consists of non-ferrous metals). After a steep decline in the middle of last year, annual zinc and aluminium exports now total close to $1.4bn.
Tasmania’s food exports surpassed $1bn annually for the first time in 2020, thanks to high demand for fish and meat products.
But late last year Chinese trade sanctions coupled with pre-existing weaknesses in other food commodities saw growth momentum quickly lost.
So, beyond the natural resource sector, growth isn’t as prevalent for other export categories.
In fact, when you exclude iron ore and concentrates, the value of Tasmanian exports actually fell compared to the year prior.
Tasmanian exporters send these products to a range of countries and even in the face of trade tensions, China is still our major customer.
During the past year alone the value of exports to China increased by almost $150m bringing the country’s total to more than $1.5bn.
But recent growth is slightly misleading due to soaring iron ore prices which mask broad declines in other commodities.
For instance Tasmanian food products (particularly fish) to China have declined substantially in the past six months.
Outside of China, a large portion of Tasmanian exports head to Asia; nine out of our top 10 export markets are located in the region.
The US (our fifth largest export market), which takes almost $235m of Tasmania’s product, is the exception.
Although the disruptions caused by the COVID-19 pandemic are largely behind us, new challenges are starting to emerge for the industry.
As geopolitical tensions evolve, no industry or commodity is safe from sudden and severe sanctions. Continued efforts to diversify and sell into a range of markets would be prudent. There is obviously a balance to be struck between maximising the short-run return through selling as much as you can to the highest bidder and ensuring that you aren’t caught flat-footed if the rug is pulled from under you.
New tax threats, such as the Carbon Border Adjustment Tax (dubbed a carbon tariff) are also emerging. Several regions, Europe the most notable among them, are
seeking to impose carbon tariffs to level the playing field for their carbon-intensive domestic industries (such as iron and steel and aluminium production) who are subject to a carbon price. Tasmania would not be immune. It is difficult to see European (or other) markets distinguish between Tasmanian products, which are processed using renewable energy, and that of Australia more generally.
As a small open economy, we gain nothing from putting our head in the sand and ignoring the challenges and risks on the horizon. By the same token, a degree of realism is required in identifying what factors are within our control and those which are not.
We have traded our way to the top performer among the state and territory economies.
The question going forward is whether we can cement these gains and build on them to deliver continued prosperity for the future.